Food: Food Banks
	 — 
	Question

Lord Haskel: To ask Her Majesty’s Government what is their response to the request by the Executive Chairman of the Trussell Trust for an inquiry into the causes of food poverty and the incidence of the usage of food banks.

Lord De Mauley: My Lords, the Government recognise the good work of organisations that redistribute surplus food to those who might otherwise struggle to access nutritional meals. However, the root causes of household food insecurity are varied and complex. We are not proposing to record the number of food banks or the potential number of people using them or other types of food aid. To do so would place unnecessary burdens on volunteers trying to help their communities.

Lord Haskel: My Lords, yesterday I visited the Trussell food bank in Richmond—the third wealthiest place in the country. There the food bank distributes a tonne of food a month, up 60% on the year, to people referred to it from 40 agencies, many of them associated with the Minister’s department. Is the Minister content to leave it to charity to feed thousands of people who fall through the cracks of his department? Does the Minister agree that this food poverty must not—cannot—go on? How will the Government bring it to an end?

Lord De Mauley: My Lords, the gist of the noble Lord’s question was whether the Government think that it is okay to rely on the voluntary sector. The answer is no. The Government recognise the good work of charitable organisations that redistribute surplus food, but the Government also have a role. It is not the Government’s role to set prices, but we work to promote open and competitive markets that help to offer the best prices to consumers. Through Healthy Start and other initiatives, we provide a nutritional safety net in a way that encourages healthy eating among more than 500,000 pregnant women and children under four years old in very low-income and disadvantaged families throughout the UK.

Lord Martin of Springburn: My Lords, is it not the case that we are subjecting people—decent men and women—to great indignities by having them queue up for food at the food banks, and that we should find some other way of helping families in need?

Lord De Mauley: I agree with the noble Lord. Of course we appreciate that some of the poorest people are struggling. The best way to help people out of poverty is to help them into work. The latest labour market statistics show employment up, unemployment down and the number of workless households down. We operate a number of government initiatives aimed at helping families with food: Healthy Start, Change4Life and the school fruit and vegetable scheme; and we are extending free school meals. In addition, there are a number of other measures designed to help households in the wider context: the personal tax allowance up £235 from April 2013, 2.4 million people taken out of tax altogether, and fuel duty increases cancelled, to name a few.

Lord Soley: Do the Government not understand that while the international financial crisis has hit people on low incomes in many countries, in this country we have an additional problem that the Government are not addressing, which is that utilities—gas, electricity and water—are hitting people on low incomes so hard that they are choosing between the utilities and food? That is what the Government need to address.

Lord De Mauley: The noble Lord makes a fair point about energy prices. Although we cannot control volatile world energy prices, we can still help people get their bills down. The best way to keep everyone’s bills down is to help people save energy, ensure fair tariffs and encourage competition, and that is exactly what we are doing.

Baroness Parminter: My Lords, usage of food banks is rising right across Europe, including in the relatively wealthy countries of the United Kingdom, France and Germany. In light of this, what discussions have the Government had with the European Commission in advance of its planned initiative on sustainable food?

Lord De Mauley: My noble friend asks an important question. We have been working closely with the Commission and other member states with regard to the communication on sustainable food. We met members of the food and drink sector before responding to the Commission’s consultation in October. We have also convened a meeting between interested parties and the Commission. It is a very complex matter but we have ensured that the Commission is aware of the many sustainability and resource-efficiency initiatives undertaken by the UK food industry in recent years.

Lord Davies of Coity: My Lords, does the Minister remember that a very long time ago a man by the name of Galbraith coined the phrase “private affluence and public squalor”? In view of the increase in poverty and the growth of food banks, does the Minister believe that this country is heading for the same situation?

Lord De Mauley: No, my Lords, and I think I have somewhat laboured the point as to the policy initiatives that we are following.

Lord Lucas: Does my noble friend not take comfort from the fact that there are poor people in Richmond, that we do not live in a segregated society, and that we are not wasting all the food that is in danger of going out of date but are finding a good place for it to go? What would the party opposite do—abolish food banks and send the food to landfill?

Lord De Mauley: My Lords, my noble friend makes a fair point. I am not going to accept his invitation to suggest what the party opposite might or might not do.

Lord McKenzie of Luton: My Lords, is it not the case that the increased use of food banks is at least in part attributable to the fact that we have a harsher benefits system, a harsher sanctions system and a harsher hardship system? In the year to June, some 860,000 JSA claimants were sanctioned; under the new three-year sanction, which we were told would apply only to a handful of people, more than 700 people were sanctioned. How healthily can you eat on £42 a week?

Lord De Mauley: My Lords, I think it is right to expect claimants who are able to look for or prepare for work to do so. Claimants will only ever be required to meet reasonable requirements, taking into account their circumstances and capability. A sanction will never be imposed if a claimant has good reason for failing to meet requirements, and sanctions can be reconsidered or appealed. If claimants demonstrate that they cannot buy essential items, including food, as a result of their sanction, they can claim a hardship payment. This means that no claimant should ever have to go without essentials as a result of their sanction.

Lord Kennedy of Southwark: My Lords, this year the Government commissioned research on the landscape of food provision. They have had the review since June; they have been reviewing it for longer than it took to write it. Is the reason why they have kept the report and have not published it yet the fact that it shows that the recent increase in food aid provision is due to their own disastrous policies? If I am wrong, publish the report.

Lord De Mauley: My Lords, the noble Lord is right that we have commissioned research to assess publicly available evidence on food aid provision in the UK, including food banks. This work will be made available in due course. All government-funded research reports are required to go through an appropriate review and quality assurance process before publication. The report will be published once this is complete.

Tanzania: North Mara Mine
	 — 
	Question

The Lord Bishop of Wakefield: To ask Her Majesty’s Government what representations they have made to the government of Tanzania regarding allegations of human rights violations at the North Mara Mine.

The Lord Bishop of Wakefield: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as the joint leader of the Wakefield-Tanzania Diocesan Link.

Lord Ahmad of Wimbledon: My Lords, the UK’s high commissioner to Tanzania visited the North Mara mine in March 2013 to raise concerns directly about the alleged human rights violations with African Barrick Gold, the mine owner, and also discussed a range of issues with the local authorities. We are, of course, working closely with the Tanzanian Government on improving respect for human rights and also encouraging them to sign up to the voluntary principles on security and human rights in the extractive sector.

The Lord Bishop of Wakefield: My Lords, I thank the Minister for that response. Would he not agree, however, that the human rights abuse at the North Mara mine, which I have experienced directly and recently, ought to be solved by a proper community relations effort in the region, and would be best resolved by a conciliar process, taking into account community leaders, Barrick Gold and the local police force? What further steps might the Foreign and Commonwealth Office take, please, to move that forward?

Lord Ahmad of Wimbledon: I agree with the right reverend Prelate, and ABG—Barrick Gold—has taken various initiatives. Indeed, our high commissioner, on visiting the area, found that up to $12 million-worth has been spent on corporate social responsibility, including healthcare centres, schools and water boreholes. There is more to be done. For example, she pointed out that although there is a healthcare centre, it is not properly manned with healthcare professionals. We have taken this up with the local authorities, working with our EU partners on the ground.

Baroness Kinnock of Holyhead: My Lords, is the Minister aware that African Barrick Gold, which is a British company, has continued to rely on the Tanzanian police to provide security at the North Mara goldmine, despite the shocking number of gunshot deaths and injuries to local people? Will the Government put pressure on African Barrick Gold and insist that it respect the human rights of desperately poor and vulnerable people?

Lord Ahmad of Wimbledon: My Lords, it is my understanding that Barrick Gold is actually a Canadian company, although it is listed on the London Stock Exchange. As for the other matter that the noble Baroness raises, I agree with her: of course it is important for all companies, including Barrick Gold, to work with the local people on the ground to ensure that any human rights violations are addressed. Secondly, I notice that the main purpose of people being there with Barrick Gold is employment, to ensure that local people get the opportunity to gain full employment.

Lord Dholakia: My Lords, there is a lawsuit by the local residents against the company alleging that it is responsible for injuries to local villagers. While we await the outcome in the court, would it be appropriate to ask the Tanzanian Government about the role of the police in the death of at least six villagers? Should we not encourage them to investigate this matter, as a human rights violation in those mining communities? I declare an interest, as one born in Tanzania.

Lord Ahmad of Wimbledon: My noble friend, of course, knows the country much better than I, and I take on board his valid points. My understanding is indeed that the police authorities and the local authorities are looking at the incident and investigating it. I assure my noble friend that my honourable friend Mark Simmonds, the Minister for Africa, has raised the issue on three separate occasions this year when meeting officials from the Government.

Lord Triesman: My Lords, the Minister is right—it is a Canadian company—but it is listed in London and, potentially, we have some responsibilities. Quite aside from the North Mara mine, there are many other reports of human rights issues involving this company—at Marinduque in the Philippines and in Papua New Guinea, where rape victims, allegedly, of the guards employed by the company, have been offered a minimal remedy provided that they give up all legal proceedings. In New Zealand, superannuation funds have now excluded investment in this company. Will the Minister give an undertaking on behalf of the FCO that in the next FCO human rights annual report the dealings of that company will be reviewed?

Lord Ahmad of Wimbledon: I shall certainly take back the views expressed during questions to my noble friend and, indeed, to my right honourable friend the Foreign Secretary. Let me assure the House that ABG is signed up to the voluntary principles on security and human rights. That is a point that we have again reinforced in discussions and representations made.

Lord Avebury: My Lords, given that this company is listed on the Stock Exchange, what are the responsibilities of the UK Listing Authority in respect of a member company accused of serious criminal offences? Could my noble friend also say what sanctions there are against a company that contravenes the UN guiding principles on business and human rights in that its grievance mechanisms are neither transparent nor equitable?

Lord Ahmad of Wimbledon: My Lords, the Financial Conduct Authority, which includes the UK Listing Authority, is authorised to fine, suspend, prohibit, order injunctions and bring criminal prosecutions, or take other actions against firms or individuals acting illegally. The UN guiding principles are, of course, a voluntary framework, so sanctions would not be applied. But most companies understand the business argument for having transparent grievance mechanisms, not only for their own employees but also to hear local concerns in which they operate.

Bovine Tuberculosis
	 — 
	Question

Lord Dubs: To ask Her Majesty’s Government whether they have any evidence about the impact of artificial insemination of cattle on the spread of bovine tuberculosis.

Lord De Mauley: My Lords, there is, indeed, a debate among veterinarians on this matter. While the evidence does not provide a definitive answer, it is important to note that TB has been eradicated from Scotland and many other countries despite the use of artificial insemination and, furthermore, that bovine TB was already endemic throughout Great Britain well before the widespread adoption of AI in the 1950s.

Lord Dubs: My Lords, is the Minister aware that I got the idea for this Question through talking to a local farmer in my valley in Cumbria? He told me that, although there were many badgers in the valley, there was no bovine TB at all, and that local farmers did not use artificial insemination. Given that there is at least some scientific basis for this, would it be right to pursue this rather than going for a badger cull for which the scientific evidence is doubtful?

Lord De Mauley: The noble Lord will not be surprised to hear that I do not agree with the last thing he said, but he might be interested to know that bull pedigree and TB data analysis of Holstein Friesian bulls, carried out by the Roslin Institute for Defra, have shown clear evidence of genetic variation to bovine TB susceptibility with a moderate heritability of 18%. However, no link was found in those studies between selection of bulls for milk yield and greater susceptibility to bovine TB. The study authors went on to conclude that,
	“selection for milk yield is unlikely to have contributed to the current”,
	bovine TB epidemic in Great Britain.

The Countess of Mar: My Lords, is it not the case that the bulls chosen at insemination centres are kept to the very highest health standards and are not exposed to TB in any way, and that artificial insemination is probably safer than the ordinary method of insemination?

Lord De Mauley: The noble Countess makes an extremely good point, and I cannot disagree with what she says.

Lord Soulsby of Swaffham Prior: My Lords, artificial insemination has been a practice in this country in dairy cattle for more than 30 years, and I wonder where this suggestion has come from. There is very little evidence—no evidence whatever to my mind—that AI can result in the transmission of TB to cattle.
	I hope that the Minister will scotch that idea, because we have an amazing health record in this country for AI and tuberculosis control.

Lord De Mauley: I am most grateful to my noble friend because he enables me to say, perhaps more categorically than I said to start with, that research indicates that there is no link between TB susceptibility and milk production traits.

Lord Clark of Windermere: Will the Minister accept my noble friend’s point that in many parts of the country there are plenty of badgers but no TB, and that one of the dangers is not the badgers bringing in TB to the cattle but cattle imported from other parts of the country being transferred into these areas?

Lord De Mauley: My Lords, that is something on which we can all agree. Indeed, our strategy is based on TB being particularly rife in the south and west and moving northwards and eastwards, but in the part of the world that the noble Lord, Lord Dubs, comes from it is not yet endemic in the badger population. What we find in the high-incidence areas is that it forms a reservoir in that element of wildlife, unfortunately badgers. As I say, our strategy is built on trying to slow the spread across the country.

Viscount Ridley: My Lords, I declare an interest as somebody who has just sold a much loved White Park bull from Northumberland to Gloucestershire, where it promptly got TB and died. The lesson I have learnt is that in future I am going to use artificial insemination instead so as not to risk these animals.

Lord De Mauley: That is a lesson to us all, my Lords.

Baroness Parminter: My Lords, the Minister said that there is an ongoing debate about the role of artificial insemination, and therefore it could merit further research. I suggest that the Government could use the money they are putting aside to research the gassing of badgers, which was deemed inhumane by a Member of this House’s committee in the 1980s.

Lord De Mauley: I can confirm to my noble friend that we are indeed continuing research into AI.

Lord Elystan-Morgan: The Minister may well recall some weeks ago, in reply to a supplementary question which I raised, that I was told that about 50% of bovine tuberculosis was attributable to badgers and about 50% to other sources. Can the Minister tell the House roughly, in the last financial year or in any other meaningful period, how much money from public sources was spent in relation to non-badger-related bovine tuberculosis?

Lord De Mauley: My Lords, perhaps I should clarify the answer I gave to the noble Lord. Research by Professor Christl Donnelly indicates that up to 50% of
	infections in the high-incidence area are due to badgers. Bovine TB can affect a wide range of species, including pigs, sheep, goats and camelids; it can affect wildlife—for example, badgers and wild deer—and pets, including cats and dogs, and of course humans. The key thing, however, is that in cattle and badgers the infection is self-sustaining. It is thought that most other species generally only act as spillover hosts.

Lord Knight of Weymouth: My Lords, the Government’s strategy is obsessed by badgers and the transfer in what is a really difficult issue for farmers and is costly to the taxpayer. What are the Government learning from the recent outbreak of bovine tuberculosis in County Durham, clearly caused by cattle-to-cattle transmission?

Lord De Mauley: I cannot accept the noble Lord’s first contention, but in response to his question about Durham, this is a beef-fattening unit, and it will therefore have bought animals in from elsewhere. That is why we introduced risk-based trading in partnership with auctioneers and the industry, to provide fuller information about TB status and history of selling herds to the market. Initially this is on a voluntary basis, but we will look at it again if necessary. We are also considering post-movement testing of cattle for those moving from high-incidence areas.

Baroness Hayman: My Lords, when I arrived at the Ministry of Agriculture in 1999, I was told that a vaccine for bovine TB was 10 years away. I was quite enthusiastic until I learnt that every Minister for animal health during the past 40 years had been told that a vaccine was 10 years away. More than 10 years further on—and I suspect that the same message has been given ever since—could I ask the Minister what the timeframe is now thought to be?

Lord De Mauley: That is a very interesting question, because we had the same discussion with the EU commissioner, Commissioner Borg, on that very subject and he, rather surprisingly, gave the same date. Developing both an oral badger vaccine—noble Lords will know that an injectable badger vaccine already exists—and a cattle vaccine remains a top priority for the Government. Since 1994, more than £43 million has been spent on developing a cattle vaccine and an oral badger vaccine. We have committed to investing a further £15.5 million in vaccine development over four years, but it is an extremely complex issue, involving extensive field trials and so on.

Local Authorities: Child Protection
	 — 
	Question

Baroness Howarth of Breckland: To ask Her Majesty’s Government what steps they will take to ensure that local authorities have sufficient social workers employed to undertake child protection work in their areas.

Lord Nash: My Lords, local authorities are responsible for judging what the level of need is locally and recruiting accordingly. Ofsted inspects children’s services and, if an authority is judged inadequate in its provision, we intervene. We should not judge the success of local authority children’s services solely by the size of their workforces. Management is also very important, as is the quality of social workers. However, since 2010, we have spent nearly £0.25 billion on social work training programmes and I am delighted to say that one of these, Frontline, has received more than 5,000 applications from top graduates in just a few weeks for its first 100 posts. The other, Step Up to Social Work, for career-changers with good first degrees, has already trained nearly 400 people and has a third cohort of 320 people in 76 local authorities beginning next year.

Baroness Howarth of Breckland: I thank the Minister for his reply, but only last week the Association of Directors of Children’s Services said that child protection services in England were under greater pressure than ever. We also heard last week that, following the Francis report, the number of nurses in hospital wards is to be monitored. We have a ratio for the number of children to teachers in education, yet social workers up and down the country are left to deal with uncontrolled caseloads—when the next case comes in, someone has to take it.
	With the number of children in care at the moment at a higher level than in the past 30 years and social workers suggesting that the level of need required to get support is greater, is it not time for the Government to do even more to intervene? The position is dangerous for children at risk and social workers alike, and responding simply by saying that social workers are committed and hard working, and that more money is now being put in, is not good enough. Are the Government waiting for the next report of a child’s death, when no doubt it will not be the institution seen as responsible but some poor individual social worker? Is it not time that greater attention is paid at a national level to what is a crisis in our children’s services?

Lord Nash: The noble Baroness speaks with great experience in this area and anything she has to say on the subject we should all listen to very carefully. We all acknowledge that social workers have a very tough job and, of course, we hear only about the disasters—there are plenty of Daniel Pelkas or Hamzah Khans whom they save and whom we never hear about. It can be a question of volume of cases, but there is evidence that there is no direct correlation between failure and caseload; indeed, a number of local authorities have failed with relatively mild caseloads. It is a question of managing those caseloads and whether the more experienced social workers get the more difficult cases. The Troubled Families programme, for which we have just announced an investment of a further £200 million, is undoubtedly helping in this regard, as are innovative ways of working such as those seen in Hackney. It is also a question of local authorities recruiting better managers for these services.

Baroness Eaton: In the light of the increased numbers of children in care, what steps is my noble friend the Minister taking to ensure sufficient numbers of adoptive parents are recruited?

Lord Nash: My Lords, this matter is at the top of our list of priorities and my right honourable friend the Secretary of State for Education feels extremely strongly about it, as does my colleague Edward Timpson. We have established the adoption leadership board to drive improvements in adoption recruitment. We have the adoption scorecard, and the adoption support fund for voluntary agencies. We have invested £150 million in the adoption reform grant, and are encouraging partnerships between local authorities and voluntary agencies. Through the Children and Families Bill we are also opening up access to the adoption register.
	I can report some good news. Today we announced that in the past year we have recruited just over 4,000 new adopters, an increase of 34%. Nevertheless, the gap between children waiting to be adopted and the numbers of adopters is sadly still widening.

Baroness Pitkeathley: My Lords, does the Minister agree that child protection, such as that called for by the noble Baroness, Lady Howarth, requires not just numbers but intense social work casework with troubled and problem families? If there were sufficient people undertaking enough of that, would it help to address some of the horrific problems that we heard about this morning from the Deputy Children’s Commissioner of children being forced into sexual activity, often associated with violence, at an unacceptably young age?

Lord Nash: The matters to which the noble Baroness refers are of course shocking. As I say, we have innovated and started the Troubled Families programme. It seems to be working well and having quite substantial effect, which is why we are expanding it to 400,000 high-risk families until 2016.

Lord Storey: My Lords, my noble friend the Minister will be aware of the child protection register, which is an important means of recording children at risk. There is also an opportunity to be proactive through use of this register. What plans do Her Majesty’s Government have for the child protection register in future?

Lord Nash: I will have to write on this to my noble friend and will do so.

Baroness Hughes of Stretford: My Lords, in the light of the shocking findings published today by the Children’s Commissioner—that the extensive use by boys of adult pornography is fuelling sexual exploitation and abuse of girls on an apparently massive scale—what action are the Government taking to ensure that social workers and teachers in particular are better equipped to protect young people from this new and escalating abuse taking place among them? In view of the widespread concern across the House about these
	serious issues, will the Minister host a meeting with the commissioner and interested Peers to discuss further her findings and recommendations?

Lord Nash: We take this matter very seriously. There are a number of programmes from CEOP and UKCCIS to help teachers in this regard and we are strongly focusing on this. I would be delighted to host the meeting to which the noble Baroness refers.

Defamation (Operators of Websites) Regulations 2013

Judicial Appointments (Amendment)Order 2013

Special Immigration Appeals Commission (Procedure) (Amendment) Rules 2013
	 — 
	Motions to Approve

Moved by Lord McNally
	That the draft regulations, draft order and draft rules laid before the House on 14 and 21 October be approved.
	Relevant documents: 10th and 11th Reports from the Joint Committee on Statutory Instruments, considered in Grand Committee on 19 November.
	Motions agreed.

Financial Services (Banking Reform) Bill
	 — 
	Report (1st Day)

Relevant documents: 8th and 12th Reports from the Delegated Powers Committee
	Clause 4: Ring-fencing of certain activities
	Amendment 1
	 Moved by Lord Barnett
	1: Clause 4, page 4, line 37, leave out from “activity” to end of line 38

Lord Barnett: My Lords, in Committee I promised the House that I would table amendments to debate the question of whether we should have separation rather than the present system. The arrangements under the Bill show that it may not work very well.
	The speakers we had on the first day in Committee went to the heart of the issue. The noble Lord, Lord Turnbull, a distinguished former head of the Civil Service, told us that the amendment he moved dealt with the whole issue. In practice, I hope that my
	amendment deals with what I said it would deal with. However, given the problems with drafting amendments to this complex Bill, I had to use the services of a very excellent person in the Public Bill Office, Simon Blackburn. Between us we drafted the amendments, which I hope work. If they do not, and the House agrees, no doubt the Minister will be able to amend the amendments to make sure that they do what I want them to do—that is, reconstruction, not ring-fencing.
	The noble Lord, Lord Turnbull, told us at col. 18 —and of course he knows about these things—that the Government’s response to the problem here, and what they plan to do, is to “change banking for good”. Of course, if that could be done, it would be marvellous. However, the plain fact is, as the noble Lord, Lord Turnbull, pointed out, that the reality is somewhat different. The Government have, of course, embraced some recommendations, but the provisions in the Bill make sure that they are heavily diluted. Speaking as a senior official, the noble Lord knows about dilution. Certainly, if you look through the Bill, there are all kinds of dilutions and provisions that make a nonsense of the original recommendation. However, with this complex new Bill it is good to have a former distinguished leader of officials tell us what it will and will not do.
	The noble Lord went on to speak about the vigorous debate the parliamentary commission had on Glass-Steagall, which is the US separation of banking. He said that eventually they came down against it because the United States had abandoned it. He was followed by my noble friend Lord Eatwell, who spoke of the importance of reviews. He said that what is being proposed here is,
	“a leap in the dark and we have no idea whether it will work”.
	As it is, it is a “novel innovation” and we,
	“cannot be sure whether it will … have … unintended consequences”.—[ Official Report , 8/10/13; col. 20.]
	I do not know what kind of unintended consequences those might be, but clearly all kinds of consequences could arise from not dealing with the real issue here.
	We therefore have my new amendments, which I hope that the House will eventually approve. However, we are a long way at the moment from achieving what we all want to see. We started with a Bill of 37 pages; the noble Lord, Lord Deighton, paid a well deserved tribute to his staff, who had converted 37 pages to 170 pages—virtually a new Bill. By the time we finish it is likely to be more than 200 pages long, as he knows from his own amendments that have been tabled. I certainly share his approbation of his officials, who have done an incredible job in the most difficult of circumstances. I have never known a Bill of this kind before in either House of Parliament. However, I assume that the House of Commons, which gave us this 37-page Bill, will now have to have a Second Reading on a new Bill, because it will not be able to cope with it as it is.
	Indeed, we know that the Bill will eventually be guillotined in the Commons, as all Bills are under all Governments. That is why, when they get here, the Bills have not been properly examined. My own experience tells me that, and I do not think anything has changed.
	In those days—30 or 40 years ago—the House of Lords did not take much interest in financial matters. Fortunately, it now does and it does a very good job in Select Committees and on the Floor of the House considering Bills that have been ill considered in the other place.
	The noble Lord, Lord Deighton, in his reply to that debate, said that his main concern on the amendments of the noble Lord, Lord Turnbull, was that,
	“even if the bank’s lobbying efforts did not succeed in blocking a requirement to restructure, they could serve to delay it and slow down the process”.—[ Official Report , 8 October 2013; col. 26.]
	His answer to this was to give in to the lobbyists and say that we therefore have to have what we now have before us. The lobbyists do not need to lobby anymore; they have all done their job in advance. It really is a remarkable statement by the Minister.
	The noble Lord, Lord Lawson, also made an excellent speech in that debate. Nobody could deny—whether we agree or disagree with him, and I have had my share of disagreements with the noble Lord in my time—that he must be second to none in the breadth, depth and length of his service and experience in this House. I pay that tribute to the noble Lord, Lord Lawson, even though, as I said, I have disagreed with him often in the past and will disagree with him again today.
	The noble Lord, Lord Turnbull, pointed out that the Minister’s remarks simply did not stack up—or was that said by the noble Lord, Lord Lawson? I think it may have been. He went on to say that he agreed with the noble Lord, Lord Eatwell, and called the Vickers recommendations a wheeze. This is the description of the noble Lord, Lord Lawson, of ring-fencing: “a wheeze”. Nevertheless, he said that he wanted to give Vickers a chance. If anyone was going to compromise on anything, I would not have thought it would be the noble Lord, Lord Lawson, given my experience of him; but he did. He compromised and said that he would give them a chance. I strongly disagree with that.
	My noble friend Lord McFall, on the other hand, who has nine to 10 years’ experience as chairman of the Treasury Select Committee in another place, told us that he recalled evidence given to the banking standards commission by Paul Volcker. He said:
	“I cannot really understand what the situation will be if you are the holding company which has authority over the ring-fence”.
	I think we could certainly understand that they would not want to see it separated. It is undoubtedly what they will do, as they have done before. We could be facing another crisis.
	Despite all these and many other concerns about what we are being asked to accept, what we now have is the scrapping of the FSA, and a new regulator, the FCA. We understand that it is a new regulator, but there was a request under the Freedom of Information Act which found out the proportion of staff in the FCA who came from the FSA. The answer was 95%. The proportion of senior staff was 95% as well. In other words, the FCA—the great new regulator—is really the much-maligned FSA, which will now call itself the FCA. Did the relevant officials receive redundancy pay costing the taxpayer millions on the
	day that they were appointed to the FCA, thereby avoiding further criticism by transferring to a new body? We are being asked to accept something remarkable here. The average pay of personnel in the FSA was £75,000 a year. What is it now for the same people in the FCA under the new remuneration code? Have they had a rise for performing as well as they did under the FSA?
	Graham Senior-Milne stated on 15 July, in an annotation to the information about the new staff at the FCA:
	“The response basically confirms that the FSA has simply changed its name in order to avoid having to take responsibility for its own past failures. Same staff, same attitude—except that now they know that they will never be held to account”.
	It is remarkable that the new body which we have set up comprises the same people as the old body. There is nothing new about it at all, but we are being asked to accept it.
	In addition, we have a relatively young new Governor of the Bank of England. However, speaking from my own standpoint, everybody is relatively young nowadays. He now has responsibility for all these matters. The noble Lord’s officials have done a marvellous job setting out in the helpful Explanatory Notes the major new system we are being asked to accept. Paragraph 10 of the Explanatory Notes is very interesting as it provides a new meaning of the word “separate”. “Separate” does not mean separate; it means ring-fencing. I do not know whether the meaning of “separation” has changed in the dictionary but I believe that “separation” means separation, not ring-fencing, but that is what we are told here. Paragraph 10 states:
	“The Bill contains provision to separate the banking activities on which households and small and medium-sized enterprises depend (in the Bill “core activities”) from wholesale or investment banking activities which may involve a greater degree of risk and expose an entity undertaking them to financial problems arising elsewhere in the global financial system. This separation is referred to in these notes as ‘ring-fencing’”.
	I assume the officials wrote that on behalf of the Minister. They did a great job. I do not know whether he feels he would have done better if he had had 10 new political appointees as aides, as has apparently been suggested somewhere. I would welcome his views on that idea, which I understand has come from the Cabinet Office.
	The Explanatory Notes contain one dilution after another of the powers of the Treasury and the Bank of England under the new arrangements. Frankly, we now have an incredible situation. Despite that, it may eventually work, but we will not know that for donkey’s years. There will be reviews in five years’ time and more reviews before we even have a chance to know whether the ring-fencing in the Bill will work and save us from what the noble Lord, Lord Lawson, called a meltdown. I certainly hope it will, but we do not know. It is, as my noble friend said, a leap in the dark. Is that what we should be doing? Should we be experimenting at this stage, when we have had a major crisis caused by the self-same bankers who are now in charge?
	The fact is that we are now going to have what has been called a new arrangement. As to the later paragraphs of the Bill, we are told by others that the professionals do not think that the new system will work. We have heard that a firm of private consultants called Kinetic
	Partners surveyed 300 people, of whom 35 thought that it would work; the rest did not—and they are the people who know what it is all about.
	I apologise for going on a bit but the fact is that this is a major part of the Bill. We now have a chance to do what has not been done before. I hope that the Minister will not consider the drafting errors in the amendment to be a major problem because I am sure that he knows he can get them altered by his officials. The situation may now have changed. The noble Lord, Lord Forsyth of Drumlean, who spent seven or nine years as an investment banker, told us that,
	“bankers are extremely adept at getting between the wallpaper and the wall. If they can find a way to get around something, they will”.—[ Official Report , 8/10/13; col. 30.]
	We have seen that succeed. The financial crisis has been too big for us now to experiment. Now is the time for action, otherwise the lobbyists will have won yet again. As the noble Lord, Lord Lawson, said, Glass-Steagall—the separation regime in the United States—did not fail but succeeded for more than 60 years. It failed when the lobbyists in the banks eventually won. However, if we managed to introduce a UK form of Glass-Steagall, strengthened to prevent lobbyists succeeding, we will have achieved something that has never been achieved before. We cannot wait for another big financial crisis. We must do it now. I beg to move.

Lord Eatwell: My Lords, I am grateful to my noble friend for moving his amendment and for pointing out the extraordinary complexity and confusion about the procedure that the Bill has gone through to get to this stage. As he pointed out, it came from the Commons as 35 pages and is now 170 pages. Substantial matters were introduced in Committee. Substantial errors were identified in Committee—even, as we shall hear, regarding the definition of a bank in a Bill on banking.
	More substantial material is now being introduced under the more restrictive circumstances of Report, and I hope that the government Whips will restrain themselves if the rules are bent somewhat in our attempt to scrutinise nearly 200 new government amendments effectively. Yesterday, on the “Today” programme, the Chancellor announced that further substantial amendments will be introduced at Third Reading with respect to payday loans. Then the Treasury was circulating extra material in e-mails after 9 o’clock last night. We have received copies of correspondence dated today between the Chancellor and the Governor of the Bank of England that changes the perspective on leverage. These measures are relevant to the most important industry in this country, and are measures to which we are supposed to give our consideration.
	The correct procedure for a Government who are serious about getting this legislation right is to recommit the Bill. If they undertake that responsible step then we on this side of the House will give them every assistance in ensuring that the passage is completed within the restrictive timetable of a carryover measure. I understand the nature of the restrictions and realise that the Minister cannot make this decision at the Dispatch Box. However, will he at least give the House an assurance that he will take this proposal seriously and ensure that the usual channels also take it seriously?
	On Amendment 1, moved by my noble friend, will the Minister tell us exactly what the phrase which my noble friend wishes to have omitted actually means? Can he give the House an illustration of the circumstances in which the taking of deposits from UK households and SMEs would not be a ring-fenced activity as the phrase suggests?

Lord Deighton: My Lords, it is a great pleasure for me to resume our debates on the Bill. We do not believe that there is any need to recommit it. These are radical and important reforms—ring-fencing, bail-in, depositor preference, a new senior person’s regime and new criminal sanctions. The Government wish to put them in action, move forward and leave the period of deliberation behind. We wish to end the uncertainty for the economy, consumers and taxpayers that prolonged reviewing can bring. Where the reforms can be improved to increase their effectiveness, the Government have been prepared to listen, and you will see that we have responded. However, where the Government do not believe the proposals are backed by evidence, or are unreasonable, we have respectfully disagreed and set out our reasons. This is the approach that we have taken to all the amendments.
	Specifically on Amendment 1, from the noble Lord, Lord Barnett, the ICB recommended that only retail deposits—that is, the deposits of individuals and small businesses—should be ring-fenced. This amendment would require all deposits to be ring-fenced. The ICB recommended that large organisations and wealthy individuals should be able—though, importantly, not obliged—to deposit with non-ring-fenced banks. This was because these depositors are sufficiently financially sophisticated to tolerate an interruption in access to a single bank, for example because they have multiple banking relationships. These sophisticated depositors therefore do not need the protection that being mandated inside the ring-fence provides. They may choose to deposit in a ring-fenced bank if they wish, of course. It also provides a little bit more competition. It gives the wealthy individuals and businesses the opportunity to shop around.
	Large corporates and financial institutions also use complex financial products which ring-fenced banks will rightly be prohibited from selling. To obtain these products, such as complex derivatives, large companies or financial institutions will need to go to a non-ring-fenced bank. Given this, it is reasonable that these customers should be permitted also to deposit with non-ring-fenced banks, as the ICB recommended. The Government accepted the ICB’s recommendation. Therefore the Bill allows the Treasury to specify by order that a non-ring-fenced bank can accept deposits in certain circumstances.
	The deposits of individuals—other than very wealthy and sophisticated ones—and small businesses will have to be within the ring-fence. There is no compulsion for large organisations or wealthy individuals to deposit outside the ring-fence, only the option for them to do so if they so choose. This option is provided for in secondary legislation. The Government published a draft of the relevant order for consultation in July this
	year. It is appropriate that detailed provisions such as this should be made in secondary rather than primary legislation to allow the legislation to keep pace with future developments in the market and to keep it fit for purpose. This approach was endorsed by the PCBS in its first report.
	It is also important to highlight that under the Bill the Treasury does not have unlimited power to determine which deposits do not have to be ring-fenced. The Treasury may only allow deposits outside the ring-fence if it is convinced that doing so does not undermine the ring-fence and that the depositors concerned do not need the protection of the ring-fence. This is therefore a constrained power that is needed to implement the recommendations of the ICB. I therefore urge the noble Lord to withdraw his amendment.

Lord Barnett: My Lords, I do not think that the Minister has dealt with the central arguments about separation; he dealt mainly with something quite different and did not reply to my questions. Whether or not he has the information to hand, perhaps he could think about whether the staff of the FSA received millions of pounds in compensation for redundancy before they were reappointed to the FCA. Can he at least tell us that?

Lord Deighton: The central question of full separation is in Amendment 2, which we will address next, and we can go on to discuss it. With respect to the FSA redundancy arrangements, I would be delighted to write to the noble Lord with that information when I have it at my fingertips.

Lord Flight: My Lords, can I ask the Minister for a little clarity on ring-fencing in terms of what is in this pot and what is in the other pot? The point he has made is that the ring-fenced pot will essentially be individual family deposits while commercial deposits would be outside the ring-fence; but what about the other side of the balance sheet in the sense of which part of the loan portfolio is to be in the ring-fence and which part is to be outside it? My previous understanding was that the ring-fence was going to be all deposit-taking and all lending. My reservations, if you like, with regard to the Glass-Steagall solution are that history has shown it is lending and not investment banking that has always caused banks trouble. This time round it was CDO lending and the unwise lending by HBOS and RBS that actually caused the banks trouble. The idea of separating absolutely banking and investment banking as a great protection for the deposits of ordinary citizens is entirely false in terms of economic history.

Lord Deighton: The clarification is that the ring-fence effectively operates on the liabilities side, so we are dealing with core deposits. Just to correct the point and make it clear, the most sophisticated investors can be either inside or outside the ring-fence, and they have the choice. However, the asset side of the bank’s balance sheet is unconstrained in the rules.

Lord Barnett: My Lords, I will withdraw Amendment 1 and then move Amendment 2, although I spoke to it generally in my first speech and I do not wish to detain
	the House for too much longer. But as the noble Lord, Lord Lawson, said at the time, these are two totally different coaches and it is going to be virtually impossible to put the two together—those were his words. I therefore suggest to the Minister that Glass-Steagall, which worked for 60 years in the United States, could be made effective here if we had stronger regulations to make sure that those banking lobbyists could not succeed in stopping the separation. That was the major point that I made, and will continue to make. That is also where I would like to leave it so that the Minister can reply to Amendment 2. I beg leave to withdraw the amendment.
	Amendment 1 withdrawn.
	Amendment 2
	 Moved by Lord Barnett
	2: Clause 4, page 7, line 22, leave out from beginning to end of line 42 on page 10 and insert—
	“Group restructuring powers
	142K Group restructuring of ring-fenced bodies
	(1) A ring-fenced body may not be part of a group which—
	(a) carries on an excluded activity or purports to do so, or
	(b) contravenes any provision of an order under section 142E.
	(2) The appropriate regulator must exercise the group restructuring powers if it is satisfied that a ring-fenced body is operating in contravention of subsection (1).”

Lord Barnett: My Lords, I beg to move.

Lord Deighton: My Lords, this Bill legislates for ring-fencing. That is the Government’s policy, not Glass-Steagall-style full separation. The Government support ring-fencing, but not as a compromise option or a lukewarm version of separation, and not as a watered-down policy. Rather, the Government have adopted the ring-fence after careful consideration of the recommendations of the Independent Commission on Banking. As noble Lords will recall, the ICB was established in June 2010. It deliberated for 15 months before making its recommendations in September 2011. As part of its deliberations, the ICB considered full separation as an alternative to ring-fencing, but it rejected that alternative and instead recommended ring-fencing. The Government have accepted the ICB’s recommendation, and the commission set out its rationale for rejecting full separation in its final report.
	Let me remind the House of the ICB’s line of reasoning. The ICB argued that an effective, robust ring-fence would deliver the same benefits to financial stability as full separation, on the model of Glass-Steagall. A robust ring-fence will insulate vital retail banking services from shocks to global financial markets—for example, reducing the risk that British high-street banks will be brought down by swings in the prices of complex securities. Let us recall, too, that retail banking has its risks and that market discipline demands that badly run banks must be allowed to fail. If a retail bank fails, a robust ring-fence will enable the authorities to manage that failure in a controlled way, with essential services kept running with the core deposits we were talking about, but without any injection of taxpayers’
	money. So, a strong ring-fence will minimise the chance that a future Government will ever be forced to bail out a failing bank. The moral hazard that encouraged excessive risk-taking before the recent crisis would be removed.
	The ICB argued that a robust ring-fence would deliver the same benefits as full separation, and would avoid some of full separation’s main disadvantages. In particular, a ring-fenced bank that found itself in financial difficulties could be supported by other group members, such as a healthy sister investment bank. Full separation would not allow this. Essentially the ring-fence is a valve; it does not let any of the bad stuff get into the ring-fence but allows support to come in if it needs it.
	Under ring-fencing, a banking group could offer a one-stop-shop service to customers, especially business customers, so there is a strong marketing advantage to the group. Deposits or simple loans could be arranged with the group’s ring-fenced bank, while more complex products are supplied by the group’s investment bank. Full separation would not allow this. Finally, the ICB estimated that by denying banks the legitimate benefits of diversification, full separation would impose higher costs—costs that would likely be passed on to banks’ customers and to lending.
	In summary, ring-fencing will bring the same benefits as full separation, but with fewer disadvantages. A rational, sober evaluation of the two thus brought the ICB to identify ring-fencing as the superior policy. I would like to use this opportunity to put paid to some myths around ring-fencing versus full separation. First, some claim that full separation is simpler to legislate for, and there is no complexity. Any separation of banks’ business will inevitably involve detailed rules to specify where the line, whether it is a ring-fence or a complete separation, is to be drawn, and proscribe which activities must take place either side of that line. As banks’ business is complex and involves a wide range of different products and services, so drawing that line will inevitably be complex. But a line will have to be drawn and someone will have to decide what is in each separated type of bank. It is the same problem for ring-fencing and full separation.
	Secondly, either form of separation will, unless vigilantly maintained, be vulnerable to erosion or bank lobbying. There are plenty of examples of that through history. I do not, therefore, accept that full separation is either more simple or more robust than ring-fencing. As I have already said, the ICB conducted an exhaustive and detailed investigation of the case for different types of structural reform before coming to its recommendation in favour of ring-fencing. That recommendation commanded a wide consensus—including regulators, industry and the Opposition. Let me quote the shadow Chancellor speaking in the Commons when the Government first responded to the ICB in December 2011. He said that,
	“we, too, support the commission’s radical reforms on ring-fencing”.—[ Official Report, Commons, 19/12/11; col. 1074.]
	Of course, no matter what the weight of evidence, there will always be some who disagree with the consensus. But to those who advocate full separation as an alternative, we need to ask: what is the evidence that supports this
	alternative policy? Throughout this process so far, the Government have openly invited others to give their views and present new evidence. We consulted widely, and submitted this Bill to pre-legislative scrutiny by the PCBS to seek its input. I do not think that the PCBS produced hard evidence in favour of full separation. It presented nothing that compared the two proposals, although it elicited some strong expressions of scepticism on whether it would work. Those are valid. It is certainly a new way of doing things.
	Where reasonable, the Government have accepted changes to the Bill that would address these concerns about the efficacy of ring-fencing. For example, Andrew Bailey, head of the PRA, argued for greater clarity over the regulator’s objectives. Similarly, Andy Haldane of the Bank of England told the PCBS that:
	“The following ingredients are essential if this ring fence is not to prove permeable: ... separate governance ... separate risk management ... separate balance sheet management, treasury management ... separate remuneration structure ... separate human resourcing”.
	So the Government clarified the regulator’s objectives, and have specified the parameters for the regulators’ rule-making, placing the Haldane principles in the Bill. We have thus made the changes that the regulators—the experts who will police the ring-fence—said were needed to make the ring-fence work. We have also taken on other reasonable suggestions made by the PCBS and others to make the ring-fence more robust. For example, we have accepted the PCBS’s proposal to electrify the ring-fence by giving the regulator power to separate a banking group that fails to uphold the ring-fence. We have agreed to use the affirmative resolution procedure to deal with changes in secondary legislation to the ring-fence.
	Responding constructively to suggestions from all sides, we have thus addressed concerns over the robustness of the ring-fence—the sole argument that has so far been advanced against it. The regulators are now content that the ring-fence can be made to work. As it is they, not Parliament, who will police the ring-fence, we must take their views seriously.
	Some members of the PCBS may shortly argue that a further reinforcement of the ring-fence is required, in the form of full separation framed as a deterrent—not to be implemented immediately, as in this amendment, but triggered following a future review. They will argue that this is a much more reasonable position than that taken by the noble Lords, Lord Barnett and Lord Peston. As I will explain, the Government do not accept that a provision for full separation can act in support of the ring-fence as a deterrent. Rather, it is a different policy, where a reserve provision is an inappropriate way to legislate. It is at best unhelpful, at worst bad law-making.
	I am very grateful to the noble Lords, Lord Barnett and Lord Peston, for calling a spade a spade, and acknowledging in this amendment that full separation is an alternative policy to ring-fencing, not a complement. To take that alternative would be to abandon the ring-fence. It would be contrary to the weight of evidence and analysis assembled by the ICB, without being grounded in a robust evidence base of its own.
	It would be a policy based purely on assertion and scepticism. The Government cannot accept that, so I call on the noble Lord to withdraw his amendment.

Baroness Cohen of Pimlico: My Lords, I have spoken before against ring-fencing and for full separation. We may not be in any kind of agreement on that, but what we ought to be in agreement on is that ring-fencing will require particularly scrupulous and detailed regulation. It will require more of our regulators than full separation, because institutional separation to some extent requires less regulation.
	I wonder whether we are quite sane in putting so much faith in our regulators. The people who gave us Mr Flowers as chairman of the Co-operative are hardly those I feel very confident about exercising the very complex regulation that ring-fencing will require. It is complex and it is difficult. It is more difficult than it needs to be than with the policy of full separation. I therefore continue to support my noble friend Lord Barnett in his amendment.

Lord Barnett: My Lords, the Minister has told us that the Government consulted widely and got agreement. Well, more recently, there were 300 professionals who were consulted in a survey and only 35 of them thought it would work. I do not know who he consulted. He also talked about the robust regulations. Who is going to supervise these robust regulations—the old FSA, now called the FCA? Is he confident that it can? I am certainly not clear myself, nor do many people have a lot of confidence that the old FSA, now the FCA, can do that job. He is confident, however, that it can.
	My noble friend Lord McFall pointed out what Volcker said to that committee: the chairman of a holding company, of which some part got into trouble because of the lack of regulation or whatever—what would he do? I know what he would do. He would seek to save it. These merchant banks may lose money at times—indeed they have done—but most of the time they make a lot of money and do not want to lose it. They want it separated, but under the same roof, with one holding company. That is what they have got and are going to get under the new administration.
	I cannot see this regulation working and would like to hear the views of any other Member of the House who has an interest in this.

Lord Flight: My Lords, can I ask the Minister whether I am right in thinking that the PRA would be the main regulator of the balance sheets of the two entities under ring-fencing, and not the FCA, which is about protecting customers? Secondly, if there were a Glass-Steagall separation, is the job not exactly the same, in that you would need to look carefully at a separate investment bank and a separate banking bank to make sure that one did not have things in it which ought to be in the other? I would have thought that the job of regulating would be exactly the same as under a ring-fenced structure.

Lord Deighton: I agree with my noble friend’s explanation of the roles and responsibilities of the respective regulators in each case.

Baroness D'Souza: Does the noble Lord wish to withdraw his amendment?

Lord Barnett: If the House is no longer interested in the matter, I beg leave to withdraw.
	Amendment 2 withdrawn.
	Amendment 3
	 Moved by Lord Eatwell
	3: Clause 4, page 17, line 15, at end insert—
	“Full separation
	142VA General requirement of separation
	(1) Where the members of any group include one or more ring-fenced bodies and one or more other bodies, the members of the group must, before the end of the period of five years beginning with the relevant commencement date, take steps to secure that there are no members of the group that are ring-fenced bodies.
	(2) If in the case of any group steps to secure that there are no members of the group that are ring-fenced bodies are not taken within the period specified in subsection (1)—
	(a) at the end of that period the Part 4A permission of each member of the group that is a ring-fenced body shall be treated as having been cancelled to the extent that it relates to a core activity, and
	(b) after the end of that period the appropriate regulator must refuse to give any member of the group a Part 4A permission to carry on a core activity.
	(3) At the end of the period specified in subsection (1)—
	(a) section 142H, subsections (1)(b) and (4) to (7), and, in subsection (8), the definition of “specified”, and
	(b) sections 142K to 142V,
	cease to have effect.
	(4) In subsection (1) “the relevant commencement date” means the day appointed for the coming into force of section 4 of the Financial Services (Banking Reform) Act 2013 so far as it inserts this section.”

Lord Eatwell: My Lords, noble Lords will notice that Amendment 3 is identical to Amendment 6, which is in the name of the group of people who we could perhaps call the commissioners—members of the Parliamentary Commission on Banking Standards who have considered these matters with care and at great length. It is interesting that the noble Lord said just now that no evidence had been provided about issues associated with separation. The parliamentary commission provided extensive evidence, to which I would refer the Minister.
	In speaking to Amendment 3, I will argue that the “reserve power” of full separation, as it was described by the parliamentary commission, is a logical and coherent part of the entire strategy of ring-fencing, which consists of three parts. First, there is the provision of the ring-fence itself. Secondly, there is electrification of the ring-fence in the case of individual groups that transgress and are subsequently required to separate. Thirdly, there is the measure put forward in Amendments 3 and 6, under which there is full separation where the process has not been followed successfully or appropriately by the banking industry.
	The whole thrust of the commission’s report is about the need to maintain these three stages. Each reinforces the other. The noble Lord argued just now
	that the Government had seen no case at all for separation. Why then did the Government accept the case for the separation of individual groups should they transgress? That case came from the commission and the case for full separation came from the commission. If he accepts one, he should accept the other. It is quite ridiculous to suggest that the commission’s processes were somehow less rigorous than those of the ICB. Indeed, the whole package put forward in this group, which consists of the case for full separation as the final reserve power and the case for review, is a single coherent package. The case for review and the case for full separation, if that review should argue that ring-fencing is not working successfully, is a coherent structure set out by the commission. The Government are lopping off an essential leg of a three-legged stool.
	Let us examine the arguments made against this amendment when it was first put by the commissioners in Committee. As well as the argument that it was somehow less rigorous—an argument that I think is almost offensive to the commission—the Government put forward the suggestion that, should the ring-fence not work, other options might be considered. The Minister raised the red herring of the possible introduction of a Volcker rule. Surely this is spurious, as here we have a coherent, structured package of three nested sets of measures to ensure the stability of the banking industry, which rely on and strengthen each other.
	What I found most surprising in the Government’s rejection of the argument for full separation is that they rejected the idea that the ring-fence will consequently be made stronger by self-policing. The banks will have a major concern that others do not transgress lest they be caught in a final decision for full separation. The noble Lord said:
	“The notion that banks will watch each other is not how the industry operates”.—[Official Report, 8/10/13; col.51.]
	I must tell the noble Lord that that is exactly how a competitive market operates in a capitalist economy—everyone watches each other. The banking market is no different. Each pursues its own interest. As Adam Smith put it—the Chancellor of the Exchequer has taken to quoting him—it is not the benevolence of the butcher or baker that provides us with meat and bread, but the pursuit of their own interest. If the banks see it as being in their own interest to avoid full separation, we can be sure that they will take all necessary steps, including mutual surveillance, to ensure that full separation does not take place. That is why the commission’s proposal is such a strong one. It strengthens the ring-fence by giving those within it the incentive to ensure that it be maintained and be not transgressed. That is why this is a coherent package.
	The Minister omitted to mention that the proposals for full separation are predicated on a thorough, independent review of the progress of ring-fencing. We have not only a nested structure, which strengthens at each stage, but, in the amendments put forward by the commissioners, a process of independent review that suggests when each stage should be introduced. That is why, for example, Amendments 15 and 195 are consequential on Amendment 3 and, with respect to Amendment 6—the identical amendment put forward
	by the commissioners—Amendments 15 and 196 are consequential. Those amendments involve the review of the entire procedure.
	If we are to have a successful ring-fence, what better than to have a structure that incentivises the banks within it to maintain the integrity of the ring-fence? That is what the commission’s three-stage process does. I beg to move.

Lord Lawson of Blaby: My Lords, this is a very important Bill indeed. We all know the great damage that the banking meltdown in the western world has caused, not least in this country. This Bill seeks to deal with that. There are few more important matters—there may be more important matters in the world but they are not susceptible to legislation. This is a vital matter that we can do something about by legislation, and that is what this Bill is about.
	In chronological order, I thank the noble Lord, Lord Barnett, for the kind things he said about points that I had made in earlier debates on this Bill. I agree with much of what he said. I also agree with much of what the noble Lord, Lord Eatwell, has just said. I congratulate the Government on setting up the Vickers commission, on having accepted the recommendations of the Vickers commission and on their amendment endorsing part of the recommendations of the Parliamentary Commission on Banking Standards, of which I was a member. The most reverend Primate the Archbishop of Canterbury was a distinguished member; I hope that he will contribute to our debate. The noble Lords, Lord Turnbull and Lord McFall, whose names are on Amendment 4, were also commissioners. I congratulate them on suggesting that there needs to be a review.
	The Government have moved a very long way—and I am delighted—but not quite far enough. That is what we are discussing in this group of amendments. To get to the core of the issue, what the Vickers commission concluded and what the Government have accepted is that there is a problem with the relationship and, indeed, the mixing of commercial and retail banking with investment banking. The Vickers commission accepted that; that is why it introduced the ring-fence. The Government accepted that; that is why they accepted the recommendation of the Vickers commission for the ring-fence.
	I have always been in favour of full separation—I came out publicly in favour of it long before the Vickers commission was even set up. We know that this works. It worked in the United States for many, many years under the Glass-Steagall arrangements and it is no accident that serious problems emerged after the Glass-Steagall Act had been repealed. Indeed, the Glass-Steagall Act would have worked for a great deal longer had not successive American Administrations been lobbied by the banks to introduce loopholes in one place and another. Anyhow, that is water under the bridge.
	What is the danger? The danger accepted by the Vickers commission and the Government is twofold. First, although my noble friend Lord Flight is absolutely right that ordinary, plain, vanilla banking is a very
	risky business and often goes wrong, there is one particular range of risks in lending: the bad lending. In investment banking you had a whole new and very complex range of risks. It is not the case that nothing has ever gone wrong there; for example, there have been huge problems with derivatives that are a product of the complexity of investment banking. So there is first the question of whether it is sensible—when straightforward, plain, vanilla banking is risking enough —to add to that a whole new range of risks, a whole new complexity, which can make it more likely that the retail deposit-taking banks will get into difficulties. It must be unwise to do that.
	The other problem is about the cultures. The Vickers commission did not talk about this, or think about it; it did not raise the issue of culture. But culture is very important. I was glad that when my right honourable friend the Prime Minister introduced the setting up of the Parliamentary Commission on Banking Standards, he explicitly said that it needed to look at the culture of banking, because something had gone wrong with it.
	The culture of retail banking and the culture of investment banking are two quite separate things. One is, or should be, a culture of caution and prudence; the other is a culture of creativeness—which is very desirable—and risk-taking of a totally different order. That is another thing that the Vickers commission did not look at.
	Now we come to the question of whether the proposal for a ring-fence will do the trick. We do not know. In the Parliamentary Commission on Banking Standards, we decided that although we had our doubts, it should be given a chance—but that there should be a proper review process, so that if it is proved not to be working, we shall move to something that will work.
	Another of the things that the Vickers commission did not consider is the problem of governance. The ring-fence is a curious system, because there is one company with two subsidiaries—the retail bank and the investment bank—and we are told that they are completely separate, yet they are together. There is a real question whether that model of governance is workable. I know of distinguished bankers—at least one of whom is present in the Chamber as I speak—who have grave doubts on this score.
	There is also a problem within the law. Boards of directors are responsible to the shareholders, so if there is complete separation it is clear that the board of the retail bank has responsibility to the shareholders of the retail bank and the board of the investment bank has responsibility to its shareholders. But under the ring-fence proposal there are two entities that we are told are completely separate, yet there is a single group of shareholders to whom they are responsible. We do not know whether this will work. We do not know whether there might be cultural contamination across the ring-fence. There is no legislation that can prevent cultural contamination, and that would be a very serious matter.
	In the commission, we said that two kinds of review powers were needed. The first would look at individual institutions. If, after a number of years, we find that an institution has found a way round, or has burrowed
	under the ring-fence, and found a way of evading what the Government and Parliament decided, it should be obliged to separate its retail banking and its investment banking. But we also said that a second kind of review power was vital. The proposed system is a right idea of the Vickers commission. A number of the Vickers commission are friends of mine, they are very clever, and I have nothing against them—but they do not know whether it will work either. It has never been tried anywhere in the world, whereas complete separation has been tried, and it has worked. So it is vital that if the system proves not to do the trick, we move to complete separation.
	Therefore, we need two kinds of review. The first is a review of an individual institution behaving in a way that undermines the ring-fence, and the second is a review to consider whether the system itself does the trick. The government amendment accepts in principle the first kind of review, but it does not accept the second kind.
	I ask my noble friend to give a firm assurance that, as part of the review, the Government will look at whether the system is working and, therefore, whether full separation will be moved to. With the best will in the world, I know that he will wish to make it work, that the PRA and FCA will wish to make it work, and so will Uncle Tom Cobley and all. But if it is not working, will the Government look at full separation? Unless that undertaking is given here, in this House, I will seek to take the opinion of the House on Amendments 5 and 6, which are linked. Amendment 6 derives from Amendment 5, as noble Lords will know.
	Given that the Government have gone so far, which I welcome, I hope that they will be prepared to make this further step and give this clear undertaking to the House.

Lord Flight: My Lords, I have broadly been in support of a Glass-Steagall separation of investment and banking banks, but there seems to me something slightly wrong with the concept of having a review and prejudging the outcome of that review. Playing devil’s advocate, I make a point on the other side of the coin. Europe has had universal banking for a long time; that is the banking tradition in continental Europe and there is still a case for universal banking to continue, although it is right out of fashion now. I repeat my point that, to a fair extent, the profits of investment banking have subsidised ordinary banking and benefited ordinary retail customers; the losses have generally come from bad lending. So it is slightly premature to prejudge the review. I cannot see what is wrong with having a review with the understanding that the Government will act on the basis of the recommendation of that review at the time. We will have moved on from the present and other factors may have come to light as well. I do not see what is gained by prejudging the result of the review.

The Archbishop of Canterbury: My Lords, as did the noble Lord, Lord Lawson, I begin by expressing my gratitude to the Government that they have listened to the speeches of many noble Lords and my PCBS colleagues on the need for a full and independent review of the ring-fence. I hope that they will realise
	that the amendments that have been tabled today are the final pieces of the puzzle in this regard. This work, combined with the vast improvements that we have seen to the electrification of the ring-fence—what is officially known as the first reserve power—is most welcome. The noble Lord, Lord Eatwell, put the case very clearly, not only for them but for the second reserve power. The Government’s approach to that is so far disappointing.
	The Minister said that he believed that a robust ring-fence will work, and so do we, as the commission. It is just that we do not think that it is robust—that is the problem. The point of the second reserve power is to make the ring-fence sufficiently robust that it will carry the day if the first one is over a period of years overwhelmed.
	The swirling floods unleashed in 2008 with the banking collapse continue to cause eddies all over our economy, particularly in the most vulnerable parts, which so many of us on these Benches are so deeply involved in supporting. Both the ICB and the PCBS concluded that the most appropriate way in which to reform the structure of the industry today is to have the ring-fence within a parent company. It is experimental —we hear the arguments, and we know so. This partial structural separation, with the added provision of ring-fence, should create a disincentive for banks to attempt to test the limits or game the ring-fence, but “should” is not sufficient.
	The advantage of the second reserve power and the first reserve power together, in addition to the ones that the noble Lord, Lord Eatwell, put so eloquently, is that they give a second shot to the gun. If the first reserve power fails, and a bank or two has been forced into full separation but the whole industry is still gaming the system, then you have still got the second reserve power. It appears that the Government’s policy on this is to have only one shot and then to say, following that, “We’ll do something. As yet, we know not what. But we will do something, and it will be something very, very serious”.
	This, however, is a structure that has to last for the next 30, 40 or 50 years. We do not want to be repeating this. We have sat here long enough over the past year. The pain of the 2008 crisis has already begun to dull. I heard a few days ago from a senior manager of a major bank that 70% of his dealers had taken up their occupation since the crash. The corporate memory will fade very rapidly. Within 10 years there will not be one at all.
	That brings us to the second reserve power. This amendment does not include the appropriate split for the full separation power in the Bill. We recognise that it has already been said, and I agree with that point, by Lord Flight, that what is appropriate now may not be appropriate in five years’ time. We cannot tell exactly what will be necessary. That is why the review should be a broad-based review that includes the possibility of a full separation.
	The Government have argued, and will argue, that full separation is something of a game changer and that such change should and can only come through
	primary legislation. The threat of action, however, against the industry gaming the ring-fence must be greater than the current perception, which appears to be one, as far as the banks are concerned, of “Well, if we have gamed the system universally, if there is the political will and the legislative time, and our lobbying efforts fail, then the Government might produce a Bill, and then we might be in trouble”.
	The inclusion of full separation in the inquiry provides a certain measured, proportionate and existential threat which makes it clear that gaming the ring-fence will be a serious mistake for the banks to make. We have already heard that, in doing this, we create an added incentive of a self-regulating and self-policing atmosphere within the banking industry. The idea that banks do not watch each other is, as the noble Lord said, incredible.
	When I was in the banking business 35 years ago, the first thing I learnt from my Norwegian boss was, “These banks, they are like sheeps. They all follow each other”. His English was perfect except that he could not handle the plural of “sheep”. I remember that and remember observing that, like all good competitors, if they saw a good thing they moved into the same space. It is how the industry works and how we want it to work.
	The second reserve power is a vital component in the structural reform of our banking sector. I urge the Minister to look again at this recommendation of the PCBS. They have gone so far. Surely to add the possibility of full separation in the review is only a further small step and a very reasonable one. Recognising that we are trying to build a banking system for the next half century, not for the next five years, I urge the House to support these amendments.

Lord Hodgson of Astley Abbotts: My Lords, I have not so far taken part in the debate on this Bill, although I participated during the passage of the earlier Financial Services Act. I therefore need to declare my interests as the chairman of two regulated entities and an as approved person under FiSMA.
	I have listened carefully to the arguments deployed on both sides of this complex debate and have a couple of concerns about what is being proposed. The noble Lord, Lord Eatwell, described his amendments as designed to provide—I think that I have got the words right—a three-stage, self-reinforcing regulatory process. In doing that, he may have overlooked the degree of uncertainty that his amendments may cause. If I may follow his analogy further, I think that it is his amendment that may remove the third leg from the three-legged stool that he mentioned.
	I agree with my noble friend Lord Lawson about the importance of reviews, particularly in cases where the likely outcome of fundamental legislation is so uncertain. In a parallel case in the Transparency of Lobbying Bill, I have tabled amendments that would have that Bill reviewed in a couple of years when one can begin to distinguish reality from supposition. I therefore favour reviews, but—and it is an important but—a review, as my noble friend Lord Flight said, must not begin with any presuppositions as to its outcome. If I may use a rather vulgar card-playing metaphor, one must not play with a loaded deck.
	Listening to some of the arguments so far, I formed the impression that these amendments could lead to a loaded deck because of the implicit power of the review to trigger separation without further primary legislation and therefore to introduce radical change without serious parliamentary consideration. As I read it, this would be the result of the House accepting Amendment 196. I think that this implication—and, of course, it is an implication—will weigh heavily on the banks and their executives and, as a result, be by no means to the advantage of the financial services industry specifically or the United Kingdom generally.
	It is an oft-repeated truism that financial markets hate uncertainty. Perhaps I may offer at a rather lower level an example from my experience of what I mean. I was for a number of years a chairman of a network of independent financial advisers. For a prolonged period, the IFA sector suffered in the shadow of the uncertainty caused by the drawn-out processes of the retail distribution review. I have absolutely no doubt that the savings regime of this country, a very important part of our body politic, was set back by this elongated debate. I feel the same may be true for the banking sector if these amendments are passed.
	Further, I am not quite clear how this approach will impose discipline, unless it is intended that some could suffer full separation and others would not. I have not yet heard that suggested by the noble Lord, Lord Eatwell, although I may have misunderstood him. If I, as a good guy, obey the ring-fence but am treated in exactly the same way as my competitor, a bad guy who has jumped the ring-fence, what incentive is there for me to follow the prescribed path?
	My second area of concern can best be summed up by the well rehearsed argument that generals always plan to fight battles that are like the ones of the last war. Of course, we have discovered egregious examples of corporate and personal behaviour that took place in the period leading up to 2008, but it is by no means clear, to me at least, that ring-fencing or not ring-fencing will have any relevance to solving the next financial crisis—and, if history tells us anything, one will be along in due time.
	Having listened to the arguments, I am forced to the conclusion that there should be a review but that it should be a review without preconceptions, and that, in any case, to trigger a move to full separation on the basis of secondary legislation, of which the ability of this House to scrutinise and amend is in my view woefully weak, would not be the right way to proceed.

Lord Lea of Crondall: My Lords, there are a lot of very interesting propositions in this group. Am I right in thinking that what is in due course printed in Hansard will be one amendment which is moved, with other amendments not printed because they are part of a single group? If so, how can one proceed with that?

Lord Phillips of Sudbury: My Lords, surely there is no more important issue in relation to this banking situation than whether to go with ring-fencing or with separation—we have had that very clearly debated today. The noble Baroness, Lady Cohen of Pimlico, raised an issue in relation to that, which my
	noble friend the Minister placed some emphasis on in responding earlier, as he did at the last stage of this debate—namely, to state that the cost of total separation would be exorbitant. The noble Baroness rightly made the riposte that the cost of policing the ring-fence will not be a one-off, as the cost of a separation would be; the cost will be year after year. The task of the regulators in policing a ring-fencing arrangement will be intensely difficult. It is easy to jibe at the regulators, but we may underestimate the extreme difficulty of doing a thorough job in this field, where you have a single holding company and two companies under it. I take the point made vividly by the noble Lord, Lord Lawson of Blaby, about cultural contamination that can easily infect a group, such as the one that the ring-fenced company will be part of.
	I hope that my noble friend will feel able to accept Amendment 5. We are all speculating madly. To have a review of how this has gone, and to look at it coolly, objectively and professionally in the period prescribed, must make absolute sense. Frankly, it is not worth taking the risk of not having such a review. The cost of getting this wrong will be insupportable. We are apt to underestimate, in what has happened over the past five years, the cost to this country in all sorts of non-financial ways. We must not let it happen again. The review that Amendment 5 proposes must be prudent, sensible and ultimately economical.

Lord Hamilton of Epsom: My Lords, I support my noble friend Lord Lawson’s amendment as well. Like him and the noble Baroness, Lady Cohen, I have always been a believer in Glass-Steagall, and in the complete separation of investment banks from clearing banks as the only way in which you can guarantee that there will be no contamination.
	My noble friend the Minister described the ring-fencing as robust. I do not know how he can speak with such confidence about the robustness of the ring-fencing. I do know that many people in the City today are, as we speak, working on ways to get round the ring-fence and to make sure that money held in clearing banks can be used in investment banks. The problem is that there is an enormous financial incentive to get round this ring-fence. If that incentive remains when you do not have separation, it is only a matter of time before the clever people employed in the City will find a way round it.
	I agree with my noble friend Lord Phillips. Much has been made of the cost of separation, but there is also the cost of ring-fencing. There are a one-off cost and a continuing cost. It would be regrettable if we did not support my noble friend Lord Lawson’s amendment and I intend to do so.

Lord Deighton: My Lords, before I turn to the substance of these amendments, I would like briefly to pause and reflect on the process that has brought us to this point. Throughout the course of this Bill the Government have consistently tried to adopt the most constructive approach possible, welcoming contributions from all sides to help us get this right. I am particularly grateful for the constructive comments to that effect from my noble friend Lord Lawson and the most reverend Primate. I thank them for those.
	Our ambition has just been to get this right. Even before the Bill was introduced to Parliament, we asked the PCBS to conduct pre-legislative scrutiny. We considered seriously its recommendations both on the draft Bill and on banking conduct and standards more generally. Almost a third of the Bill before us today was either added or heavily amended in response to its recommendations. We have also showed ourselves to be open to considering ideas proposed by the Opposition, both in the Commons and in this House. Where we have been convinced by the points made, we have been willing to amend the Bill to reflect that. I think that the sentiment of the House has demonstrated that. That includes changes to the process of scrutiny of the ring-fencing proposals, introducing the single bank separation power, putting the so-called Haldane principles in the Bill and clarifying the regulator’s objectives.
	On the specific subject of the independent review of the ring-fence, the Government have never opposed the principle of a future review. How could we when the ring-fence itself was the product of an independent review, the ICB? Indeed, my right honourable friend the Chancellor told the PCBS in February this year that,
	“we should have a review about whether the John Vickers reforms are working”.
	Therefore we have been more sceptical of the need to legislate for this review. After all, the ICB itself needed no legislation to conduct its painstaking research and rigorous, independent analysis. However, having listened to the arguments made, in particular in this House by members of the PCBS, we have accepted the case for a statutory review of the ring-fence in the interests of certainty, to determine, as my noble friend just pointed out, whether it is as robust as I have implied we would like it to be.
	Government Amendments 11 and 16 therefore provide for a review of the operation of the ring-fence, to be conducted by a panel of independent experts once the ring-fence has come into force. In drawing up these amendments, the Government have consulted closely with members of the PCBS. My right honourable friend the Chancellor and I met PCBS representatives to discuss their concerns. We have made our officials available to them to clarify any points of technical detail and have shared drafts of our amendments in advance—which, incidentally, explains why the drafting of the PCBS’s amendments so closely matches our own.
	Following those discussions, the Government believe that our amendments address the substance of the PCBS’s concerns. To reflect that ring-fencing is a bold new step, the review’s central task will be to assess how well the ring-fence is working. Its conclusions are not constrained; it can make any recommendations it sees as appropriate. If it believes that the ring-fence is in need of improvement or repair, it will be able to make recommendations as to what changes in the legislation or rules are required to fix it. Therefore I can give my noble friend Lord Lawson the unequivocal commitment which I think he asked for—I will test whether I have got this right—that if the review concludes that the
	ring-fence is irreparably broken, it will also have the scope to recommend an alternative approach altogether. That will, of course, include full separation.
	The review will be conducted by a panel of experts who are independent of the Government, the Bank of England and regulators, as well as financially independent of the industry. Amendment 16 gives it a statutory power to obtain whatever information it believes is necessary to complete its work. Despite our approach in developing these amendments, it appears that some areas of difference remain, which are reflected in the various alternative amendments that have been tabled for debate today. I will address those issues now. I think it will go some way to helping us see how all this will be turned into something that makes coherent sense.
	First, I will address the issue of the review panel membership. The Government do not believe that requiring pre-approval, as in Amendments 4, 5 and 13, is proportionate or appropriate. At present there is only one government appointment for which pre-approval is required: the appointment of the head of the Office for Budget Responsibility. That arrangement is supported by a strong body of academic literature that emphasises the essential need for credible and independent fiscal forecasts and statistics. No comparable evidence base exists in the case of an independent review of ring-fencing.
	I also note that pre-approval of this sort is not required for the Governor of the Bank of England or the heads of the regulators, so is membership of a review really a more weighty responsibility than any of those posts? Finally, Sir John Vickers and the ICB were not subjected to any pre-approval requirement, yet their independence could hardly be questioned. As noble Lords will see from government Amendment 11, we have already accommodated the PCBS’s desire for a parliamentary role by requiring consultation with the chair of the Treasury Committee before review panel members are appointed. I hope that that is sufficient to satisfy any concerns. I therefore call on the noble Lords not to press those amendments.
	On the scope of the review, Amendments 4 and 14 similarly specify recommendations that the review must consider. As the review will be able to make recommendations on whatever it sees as appropriate—including recommended alternatives such as full separation, or indeed other ideas if they are appropriate—I do not believe that this is necessary. Indeed, it could even cast doubt on whether the review had the right to consider matters not specified in the legislation, which would constrain it, contrary to the PCBS’s intentions. However, I believe that the Government’s amendment and the PCBS’s amendment are sufficiently close in substance that, on the basis of my clear commitment, this amendment should not be pressed.
	Amendments 5 and 15 would expressly require the review to consider the case for full separation as an alternative to ring-fencing. While I believe the review should be free to recommend what it wishes, the Government do not, however, believe that it is appropriate to require it to consider a specific alternative, to privilege in legislation consideration of one possible conclusion of a review. Let me be very clear: if the review concludes that the ring-fence has failed beyond repair, it will be
	able to propose an alternative policy. That could be full separation, if the review believed that to be the best alternative course. It could, however, be other things too.
	On both of these points, the Government’s amendments deliver the substantive objectives of those tabled by the PCBS. Indeed, as the review will also be able to consider the case for a ban on proprietary trading—on the model of the US Volcker rule—they also meet the objectives of Amendment 181, which we will debate later. Therefore, we can use this device to ensure that, if there are emerging issues with respect to proprietary trading, the review has the flexibility to make recommendations in that area too. I therefore hope that the noble Lords will not press their amendments.
	I turn next to Amendment 12, which would shorten the period between ring-fencing coming into force and the review being conducted. On this point, the Government see the force of the arguments made by the Opposition, and agree that an earlier review than that proposed by the PCBS could be helpful. Provided that the regulators agree that a review after just two years is feasible, we would certainly be willing to consider this change. We are quite open-minded on the timing and I hope that the various parties will find a way of reaching an agreement on that.
	Finally, I will address the question of whether the legislation should establish an independent review as a trigger for a move to full separation, as provided for by Amendments 5, 6, 15, 195 and 196. The Government continue to believe that a reserve provision for full separation is at best otiose, and at worst bad law. As I have already said, a review that concluded that the ring-fence was irreparably broken could recommend a shift to full separation instead. It could, however, recommend a shift to some other option too. If it did, and if the Government of the day accepted that recommendation, then a reserve provision for a full separation would not be appropriate in any case.
	Imagine, however, that a review did propose full separation, and the Government of the day accepted that recommendation. Simply enacting a reserve provision would be a very poor way to implement such a significant change. It would allow for no detailed scrutiny, no debate, and no thorough testing of the arguments by Parliament. Yes, there would have to be a review, but the ICB proposals went through Second and Third Reading debates and extensive Committee scrutiny. None of that would be available to the outcome of this review. The Government, therefore, remain of the view that inserting a reserve provision now would be bad legislation, so I call on the noble Lords not to press their amendments.
	Some have argued that a reserve provision of this sort could act as a deterrent, reinforcing the ring-fence by threatening dire consequences in the event that banks “game” the rules. Personally, I do not find this convincing. For a deterrent to work, consequences must follow from the bad behaviour that it is intended to deter. But the amendments before us today make no mention of gaming. Under these amendments, a review could conclude in favour of a switch to full separation without even having considered whether any gaming had taken place. How, then, is that a deterrent?
	I should also remind the House that we have already provided for a powerful deterrent against gaming, by giving the regulator the power to force a single group that has gamed the rules to separate. In my own experience as a banker, I can absolutely make clear that I was much more concerned about a regulator dealing with my own institution and threatening to make changes there if I did not behave than considering what my competitors were doing. The powerful tool is the direct, specific action against an individual institution. That is what the existing electrification we have included provides for. For me, that is the appropriate additional tool for the regulator. By contrast, even if the review did recommend full separation on the grounds that some firms had gamed the ring-fence, forcing separation on the entire sector—the innocent as well as the guilty—would be unjust and disproportionate. Indeed, if firms are at risk of being split up whether they game the ring-fence or not, they could conclude that they might as well game the rules, and cash in while they can. So, far from deterring gaming, a reserve provision might actually encourage it.
	The Government have approached this issue in an open and constructive spirit. We have listened to the concerns that have been expressed in this House and elsewhere. The Government’s amendments meet the substance of those concerns and deliver an independent, expert review of the ring-fence, once it is in force. This will ensure that it remains fit for purpose.

Lord Eatwell: My Lords, I am very grateful to the Minister for that expert summary of a complex set of amendments. However, I hope that I may ask him one question before he sits down. He referred to our Amendment 12, which would shorten the period before a review takes place, and said that he was very sympathetic and receptive to that point. Will he therefore accept Amendment 12?

Lord Deighton: I think the right thing for us to do is to discuss it together with our colleagues from the PCBS. The noble Lord is, of course, entitled to take the amendment to a vote, but I have not yet had the chance to discuss it with PCBS colleagues. The Government have an open mind on the relevant period, so I would prefer a fuller discussion.

Lord Eatwell: Does the Minister mean that he is content to return to this issue at Third Reading?

Lord Deighton: That is what I meant to say.

Lord Eatwell: Thank you very much.
	This is a complicated set of interrelated amendments. I congratulate the Government on their Amendments 11 and 16 in which they have moved towards the commission’s position in proposing an independent review. By the way, I did not find any evidence that new Section 142J had been deleted, which was the previous requirement that the PRA conducted the review. Is there supposed to be a PRA review and an independent review? Surely that is not the case. It is not an important point but we should not leave both of them on the statute book. As I say, I did not detect that new Section 142J had been deleted.
	We have a coherent package with the nested structure of the ring-fence, the electrification applied to individual groups and the electrification applied to the whole structure of banking—the so-called complete separation. That seems to me a coherent, rational structure which is supported by the review. Therefore, there will be the opportunity to take into account the detailed scrutiny by the ICB and the commission and consider which stage of this nested structure should be accepted. It seems to me that that coherence provides certainty as regards the way forward—not uncertainty, as the noble Lord, Lord Hodgson, suggested—because the review will not throw everything up in the air and lead to more years of parliamentary debate. We have been doing this for three years already, leaving the industry in a state of uncertainty. We should not throw it up in the air again but create a clear, rational structure that has been carefully put together by the ICB and the commission to provide for the review and separation.
	The ordering of amendments before us makes our consideration a little awkward because we first have to consider my amendment on separation, Amendment 3 —which is identical to the commission’s amendment, Amendment 6—and then talk about the review. However, in the light of the care and consideration that the commission has given, I am content to fully support the commission’s position on the triumvirate of ring-fencing, group separation and full separation. I therefore wish to test the opinion of the House on Amendment 3.

Division on Amendment 3
	Contents 220; Not-Contents 229.
	Amendment 3 disagreed.

Amendment 4
	 Tabled by Lord Lawson of Blaby
	4: Clause 4, page 17, line 15, at end insert—
	“142VA Review of operation of legislation relating to ring-fencing
	(1) The Treasury must, before the end of the initial period, appoint a panel of at least 5 persons (the review panel) to carry out a review of the operation of the legislation relating to ring-fencing.
	(2) The legislation relating to ring-fencing means—
	(a) Part 9B of FSMA 2000 (as inserted by section 4);
	(b) orders and regulations made by the Treasury under that Part;
	(c) ring-fencing rules, as defined by section 142H(3) of FSMA 2000, made by the FCA or the PRA;
	(d) section 192JA of FSMA 2000 (as inserted by section 116);
	(e) rules made by the FCA or the PRA under that section.
	(3) The initial period is the period of 4 years beginning with the first day on which section 142G of FSMA 2000 is fully in force.
	(4) The members of the review panel must be persons—
	(a) who appear to the Treasury to be independent of the PRA, the FCA, the Bank of England and the Treasury, and
	(b) who do not appear to the Treasury to have any financial or other interests that could reasonably be regarded as affecting their suitability to serve as members of the review panel.
	(5) In appointing the members of the review panel, the Treasury—
	(a) must have regard to the need to ensure that the review panel (considered as a whole) has the necessary experience to undertake the review,
	(b) must ensure that at least one of the members is a person appearing to the Treasury to have substantial experience in central banking or banking regulation at a senior level, and
	(c) must obtain the consent of the chairman of the Economic Affairs Committee of the House of Lords and the chairman of the Treasury Committee of the House of Commons.
	(6) The Treasury must appoint one of the members of the review panel to be chair of the panel.
	(7) The review panel must, within a reasonable time after the end of the initial period, make a written report to the Treasury—
	(a) setting out the results of the review,
	(b) making such recommendations (if any) as the panel considers appropriate.
	(8) The report must in particular include—
	(a) an assessment of the extent to which the operation of the legislation relating to ring-fencing is facilitating the advancement by the PRA of the objective in section 2B(3)(c) and by the FCA of the continuity objective, and
	(b) any recommendations which the panel considers appropriate for the making of further changes in the law with a view to better facilitating the advancement of those objectives; provided that such recommendations are consistent with the continued protection of core activities as defined in section 142B of FSMA 2000.
	(9) The Treasury must—
	(a) lay a copy of the report before Parliament, and
	(b) publish the report in such manner as they think fit.
	(10) Any expenses reasonably incurred in the conduct of the review are to be paid by the Treasury out of money provided by Parliament.”

Lord Lawson of Blaby: My Lords, in the light of the clear and explicit assurance given by the Minister that the independent review will be able to recommend full separation, I will not move the amendment.
	Amendment 4 not moved.
	Amendments 5 and 6 not moved.
	Amendment 7
	 Moved by Lord Deighton
	7: Clause 4, page 17, line 38, after “scheme” insert “all or”

Lord Deighton: My Lords, these amendments make a number of minor and technical amendments to the Bill. Amendments 7 and 8 amend new Section 142W, which gives the Treasury the power to require that ring-fenced banks make arrangements to ensure that
	they cannot become liable for the pension liabilities of any non-ring-fenced entity, and that they minimise such potential liabilities if they cannot entirely prevent them arising. In the process of making these arrangements, the pension scheme trustees may wish to transfer assets or liabilities between schemes. These amendments clarify that the Treasury can make regulations enabling trustees or managers to transfer to another pension scheme all the pension liabilities arising in connection with persons’ service before the date on which ring-fencing comes into effect, together with all the scheme’s assets and not just part of those liabilities and assets.
	The Government’s intention is to give banks and trustees flexibility in how they carry out any segregation or separation of pension schemes. If trustees judge that transferring all such liabilities or assets is in the best interests of scheme members, the legislation should not prevent that. The trustees have a duty to act in the best interests of scheme members throughout any restructuring that takes place to comply with ring-fencing. As an added safeguard, we are taking the power under the Bill to require the banks by regulation to do all they can to get clearance from the pensions regulator for their scheme restructuring.
	Amendment 9 is a minor and technical amendment which clarifies the definition of a qualifying parent undertaking for the purposes of Part 9B of FiSMA, which deals with ring-fencing. A qualifying parent undertaking is defined in proposed new Section 142L(4), and this amendment ensures that this definition will apply wherever the term is used in Part 9B.
	Amendment 173 is a minor and technical amendment which clarifies that the definition of regulator in Section 3A does not apply for the purposes of Sections 410A and 410B, which deal with the Treasury’s power to impose fees on the financial services industry to cover the costs of UK participation in certain international organisations. The amendment ensures that the definition of regulator that applies to these sections includes the Bank of England, rather than the definition given in Section 3A of FiSMA, which is limited to the FCA and the PRA.
	Amendment 7 agreed.
	Amendments 8 and 9
	 Moved by Lord Deighton
	8: Clause 4, page 17, line 40, after “with” insert “all or”
	9: Clause 4, page 22, line 6, at end insert—
	“(4) Any reference to a qualifying parent undertaking is to be read in accordance with section 142L(4).””
	Amendments 8 and 9 agreed.
	Clause 5: Directors of ring-fenced bodies to be approved persons
	Amendment 10
	 Moved by Lord Deighton
	10: Clause 5, leave out Clause 5

Lord Deighton: My Lords, this amendment removes Clause 5 from the Bill. It will leave the regulators, the PRA and the FCA to decide among themselves which one of them designates board members of ring-fenced banks as senior managers and which directors should be designated. Clause 5 requires that the PRA on its own designates all directors of a ring-fenced bank as senior managers under the new senior managers regime. This clause was introduced originally before the senior managers regime was proposed. It now needs to be updated to reflect those changes.
	The PRA is considering how to implement the PCBS’s recommendation of focusing the new senior managers regime to strengthen individual responsibility for actions of the firm. The PRA wants to develop the new regime in a way that improves its ability to bring enforcement action against individuals when things go wrong. To achieve this, the PRA thinks that it may be best to limit the number of board members it designates as senior managers, to narrow the scope of accountability. Those directors designated senior managers by the PRA will need to comply with conduct standards that will further the PRA’s safety and soundness objective.
	Clause 5 would force the PRA to designate all board members of ring-fenced banks as senior managers. It prejudges the outcome of the regulators’ policy development and could result in the application of the senior managers regime to ring-fenced banks being less focused than for the rest of the sector. A focused regime should improve the ability of the PRA to take enforcement action against individual directors by making clearer which senior managers are responsible for different aspects of the firm’s business. The Government therefore agree with the PRA that Clause 5 should be removed.
	Some directors not designated as senior managers by the PRA may be more appropriately designated by the FCA. The precise calibration should be left to the regulators, who will consult on this next year. The removal of the clause also brings the application of the senior managers regime to ring-fenced banks into line with how it will be applied outside the ring-fence. Outside the ring-fence the PRA or the FCA can designate directors as senior managers.
	Moving on, the minor and technical amendments to Schedule 2 will help to ensure that the bail-in provisions can be used effectively and as intended. Following the introduction of these provisions in Committee, we have discussed them with various stakeholders and experts. These amendments are the result of those discussions.
	First, we have specified that special bail-in provision can be made to release guarantees which are not provided directly by the bank, but by other companies in the banking group, in consequence of the application of the powers to make special bail-in provision in relation to the liabilities of the bank under resolution. This ensures that guarantee arrangements can be adjusted in line with any write-down or cancellation of a liability of a bank covered by that guarantee.
	Secondly, the amendments will give the Bank of England the ability to make an agreement with the director or directors of a bank with regard to the preparation of the business reorganisation plan. The existing drafting already allows such an agreement between the Bank of
	England and the bail-in administrator when appointed to prepare the plan. This is simply an extension of the arrangement to cover the case in which a director is appointed to perform that task.
	Thirdly, we have clarified that where any person is acting under the direction of the Treasury for purposes related to state aid, that person is granted immunity from liability in damages save in relation to action in bad faith or in breach of the European Convention on Human Rights. There is a minor linguistic change to subsection (3) of new Section 48D to be inserted into the Banking Act.
	Finally, the exercise of any of the stabilisation powers under Part 1 of the Banking Act 2009 to reduce a bank’s debt may lead to taxable loan relationship profits that would hinder its rescue. Consequently we will bring in measures in the next Finance Bill, with retrospective effect to this date, to relieve any such taxable profits that arise. I beg to move.
	Amendment 10 agreed.
	Amendment 11
	 Moved by Lord Deighton
	11: After Clause 8, insert the following new Clause—
	“Independent review of operation of legislation relating to ring-fencing
	(1) The Treasury must, before the end of the initial period, appoint a panel of at least 5 persons (“the review panel”) to carry out a review of the operation of the legislation relating to ring-fencing.
	(2) “The legislation relating to ring-fencing” means—
	(a) Part 9B of FSMA 2000 (as inserted by section 4);
	(b) orders and regulations made by the Treasury under that Part;
	(c) ring-fencing rules, as defined by section 142H(3) of FSMA 2000, made by the FCA or the PRA;
	(d) section 192JA of FSMA 2000 (as inserted by section 116);
	(e) rules made by the FCA or the PRA under that section.
	(3) The initial period is the period of 4 years beginning with the first day on which section 142G of FSMA 2000 is fully in force.
	(4) The members of the review panel must be persons—
	(a) who appear to the Treasury to be independent of the PRA, the FCA, the Bank of England and the Treasury, and
	(b) who do not appear to the Treasury to have any financial or other interests that could reasonably be regarded as affecting their suitability to serve as members of the review panel.
	(5) In appointing the members of the review panel, the Treasury—
	(a) must have regard to the need to ensure that the review panel (considered as a whole) has the necessary experience to undertake the review, and
	(b) must ensure that at least one of the members is a person appearing to the Treasury to have substantial experience in central banking or banking regulation at a senior level.
	(6) Before appointing the members of the review panel, the Treasury must consult the chairman of the Treasury Committee of the House of Commons.
	(7) The reference in subsection (6) to the Treasury Committee of the House of Commons—
	(a) if the name of that Committee is changed, is a reference to that Committee by its new name, and
	(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable;
	and any question arising under paragraph (a) or (b) is to be determined by the Speaker of the House of Commons.
	(8) The Treasury must appoint one of the members of the review panel to be the chair of the panel.
	(9) The review panel must, within a reasonable time after the end of the initial period, make a written report to the Treasury—
	(a) setting out the results of the review, and
	(b) making such recommendations (if any) as the panel considers appropriate.
	(10) The Treasury must—
	(a) lay a copy of the report before Parliament, and
	(b) publish the report in such manner as they think fit.
	(11) Any expenses reasonably incurred in the conduct of the review are to be paid by the Treasury out of money provided by Parliament.”
	Amendment 12
	 Tabled by Lord Eatwell
	12: After Clause 8, line 13, leave out “4” and insert “2”

Lord Eatwell: My Lords, given the assurance given by the Minister that we will return to this matter at Third Reading, I beg to withdraw the amendment.
	Amendment 12 (to Amendment 11) not moved.
	Amendments 13 to 15 (to Amendment 11) not moved.
	Amendment 11 agreed.
	Amendment 16
	 Moved by Lord Deighton
	16: After Clause 8, insert the following new Clause—
	“Right to obtain documents and information
	(1) A review panel appointed under section (Independent review of operation of legislation relating to ring-fencing)—
	(a) has a right of access at any reasonable time to all such documents as the panel may reasonably require for the purposes of the review, and
	(b) may require any person holding or accountable for any such document to provide such information and explanation are reasonably necessary for that purpose.
	(2) An obligation imposed on a person as a result of the exercise of the powers conferred by subsection (1) is enforceable by injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.”
	Amendment 16 agreed.
	Schedule 2: Bail-in stabilisation option
	Amendments 17 to 20
	 Moved by Lord Deighton
	17: Schedule 2, page 102, line 31, at end insert—
	“(1A) “Special bail-in provision”, in relation to a bank, also includes any associated provision (see subsection (1B)) that the Bank of England may think it appropriate to make in consequence of any provision under subsection (1) that—
	(a) is made in the same resolution instrument, or
	(b) has been made in another resolution instrument in respect of the bank.
	(1B) “Associated provision” means provision cancelling or modifying a contract under which a banking group company has a liability.”
	18: Schedule 2, page 105, line 9, leave out “was a result of” and insert “resulted from”
	19: Schedule 2, page 107, line 14, leave out “bail-in administrator” and insert “person required to draw up the business reorganisation plan”
	20: Schedule 2, page 124, line 26, at end insert—
	“(6) A direction under this section may specify circumstances in which the person given the direction is immune from liability in damages.
	(7) Immunity by virtue of subsection (6) does not extend to action—
	(a) in bad faith, or
	(b) in contravention of section 6(1) of the Human Rights Act 1998.
	(8) Where a direction under this section is given to a director of the institution, the director is not to be regarded as failing to comply with any duty owed to any person (for example, a shareholder, creditor or employee of the institution) by virtue of any action in compliance with the direction.””
	Amendments 17 to 20 agreed.
	Amendment 21
	 Moved by Lord Eatwell
	21: Before Clause 14, insert the following new Clause—
	“Professional standards
	After section 65 of FSMA 2000 insert—
	“65A Professional standards
	(1) The regulator will raise standards of professionalism in financial services by mandating a licensing regime based on training and competence.
	(2) This licensing regime must—
	(a) apply to all approved persons exercising controlled functions, regardless of financial sector;
	(b) specify minimum thresholds of competence including integrity, professional qualifications, continuous professional development and adherence to a recognised code of conduct and revised Banking Standards Rules;
	(c) make provisions in connection with—
	(i) the granting of a licence;
	(ii) the refusal of a licence;
	(iii) the withdrawal of a licence; and
	(iv) the revalidation of a licensed person of a prescribed description whenever the appropriate regulator sees fit, either as a condition of the person continuing to hold a licence or of the person’s licence being restored;
	(d) be evidenced by individuals holding an annual validation of competence;
	(e) include specific provision for a Senior Persons Regime in relation to activities involving the exercise of a significant influence over a controlled function under section 59 of the Act.
	(3) In section 59, for “authorised” substitute “licensed” throughout the section.””

Lord Eatwell: My Lords, Amendment 21, and Amendments 50 and 51 from the commissioners, refer to the professional standards to be required in the
	banking industry—particularly to licensing bankers who have attained the required professional standards and, of course, not licensing those who have not. With respect to the conduct and skills of members of the banking industry, the Bill currently refers to “rules of conduct”. Amendments from the commissioners use the words “licensing regime”, but continuously refer to the adherence to rules.
	The notion of a licence surely refers to some level of professional competence or professional standards. The Co-operative Bank may have obeyed the rules, but we now know it would have failed even the simplest test for professional competence. Rules may require the attainment of professional qualifications, but we cannot be sure and, as the Government regularly argue, certainty is important in this legislation. The clause in the Bill as drafted refers to rules of conduct. The commissioners’ amendment refers to,
	“training in the effect and application of the rules of conduct”.
	However, neither of them seem to convey the true context of professional standards.
	As an academic, I am perhaps rather overly keen on examinations and the attainment of professional standards. Doctors have professional standards because they are required to pass examinations, undergo rigorous professional training and be thoroughly trained in ethical standards. Lawyers have professional standards because they are required to pass examinations, undergo rigorous professional training and be thoroughly trained in ethical standards. Of course, doctors and lawyers may, on occasion, not maintain the standards we would expect.

Lord Phillips of Sudbury: I hate to interrupt the noble Lord but I cannot resist saying that, unfortunately, the training of solicitors at this time does not involve rigorous ethical training. In fact, it involves little ethical training at all.

Lord Eatwell: I am sure that the noble Lord, as a distinguished solicitor, would attest to that, as indeed he has done. It seems to me that if members of the professions are required to pass examinations to show professional competence and to undertake rigorous training, bankers should do the same. That is what Amendment 21 seeks to achieve. For example, proposed new Section 65A(2)(b) says that the licensing regime must,
	“specify minimum thresholds of competence including integrity, professional qualifications, continuous professional development and adherence to a recognised code of conduct and revised Banking Standards Rules”.

Lord Spicer: What is a minimum threshold of integrity?

Lord Eatwell: Being a “fit and proper person” would perhaps be appropriate. If the noble Lord is not aware of the phrase, it is the standard regulatory threshold which anybody operating in financial services must attain.
	Amendment 21 seeks to capture the need for proper training, continuous development and the maintenance of proper professional standards via a licensing regime.
	I have enormous sympathy with Amendments 50 and 51, tabled by the commissioners, but I am afraid that they do not capture the need for professional qualifications.
	With respect to the government amendments in this group, they are mostly concerned with the correct definition of a bank. I am delighted to see that we now have a definition of a bank. It may be of interest to the House to know which banks are now included that were excluded in the past. Barclays Capital, Citigroup, Credit Suisse Securities and Goldman Sachs International were not included in the previous definition of a bank, but I am glad to say that they are now. I congratulate the Government on appropriately incorporating them. However, those government amendments stand slightly aside from the issue of professional standards addressed in Amendment 21 and in Amendments 50 and 51, tabled by the commissioners.
	I suggest to your Lordships that this House asserting that the banking industry must maintain appropriate professional standards is the minimum that the public expect of us. I beg to move.

The Archbishop of Canterbury: My Lords, Amendment 50 is in my name and those of the noble Lords, Lord Turnbull, Lord Lawson of Blaby and Lord McFall of Alcluith. It clarifies the scope of who the new senior persons regime will apply to, to ensure that it is rightly focused on material risk-takers, not on all bank employees. I will also speak to Amendments 51 and 60 which stand in my name and those of the noble Lords as colleagues on the commission. Amendment 51 sets out the duties relating to the application of the new licensing regime for the banking regime. Amendment 60 also deals with clarifications in the scope of the senior persons regime.
	In Committee, on a day that I was unfortunately unable to attend owing to having to baptise someone, my noble friend Lord Turnbull welcomed many of the Government’s proposals relating to the functions of senior managers in banks, including ensuring that senior managers have a statement of responsibilities and the reversal of the burden of proof on whether a person is fit and proper to take up a senior management position. We are very grateful for that. However, my noble friend Lord Turnbull also raised a number of questions that I hope can be adequately answered today, although I realise that there is still a lot of reflection going on in this area.
	At that stage, the Bill made no reference to the second tier of the two-tier system proposed by the Parliamentary Commission on Banking Standards: the licensing regime. As the Bill stands, it simply allows the regulator to,
	“make rules about the conduct”,
	of any “employee of the bank” if it,
	“appears … to be necessary or expedient”.
	As both Amendment 50 and Amendment 60 deal with our concerns around the application of these rules to any “employee of the bank”, let me turn to the issues that this language raises.
	The commissioners argued that a two-tier system is the right way to deal with the issue. The expectations on senior managers must be high. However, it is also right that those who are not part of the senior
	management of the bank should have high standards. The noble Lord, Lord Eatwell, has addressed this. By making it explicit that the rules of conduct and the definition of misconduct in Clause 22 refer to,
	“employees whose actions or behaviour could seriously harm their employer, its reputation or its customers”,
	the amendment is aimed at ensuring that the FCA and the PRA focus their regulatory duties on those employees who could inflict the most significant and material damage on their institutions and on the banking system as a whole. These are not always the most senior employees. They could be a junior dealer, fairly new in the business, who, ignoring his internal limits, deals in a way that does great damage both to customers and to his employer. He can be fired and even sent to prison, but the deals are still the responsibility of the bank.
	It is therefore necessary to have an amendment that not only widens beyond the senior management, obviously, but narrows so that it does not try to cover all the employees but has a very focused look at those who are going to be able to do the most damage the most often, and who are at highest risk. In our regular and ongoing conversations with the regulators and in the light of their official responses to our work, the commission has not yet been convinced that they would go far enough to ensure that this specific group of material risk-takers would be central in any further regulation and thus that neither the spirit nor the letter of the commission recommendations would be implemented.
	Amendment 51 seeks to correct the failings of the approved persons regime that this new two-tier system replaces. The noble Lord, Lord Turnbull, also stated previously that this regime operates mostly as an initial gateway to taking up a post rather than serving as a system through which regulators can ensure the continuing exercise of responsibility.
	The amendment also deals with another concern articulated by the noble Lord, Lord Turnbull, that there is still no requirement that the regulator operate a licensing regime. The Bill states that the regulator may make rules relating to conduct if it appears “necessary or expedient”. By setting out explicitly that the,
	“relevant authorised person has a duty to ensure that all relevant employees comply with rules of conduct”
	made by the regulator, the amendment makes it clear that the rules of conduct for material risk-takers who are not senior management are just as seriously applied as those governing senior management. This gives a clear identity to the new second tier of the system, which is vital if it is to be taken seriously by regulators and banks.
	As I said a few moments ago, I am aware of ongoing conversations between my colleagues and the Treasury over a few remaining issues around the implementation of the licensing regime. I believe that these are mostly in relation to the most appropriate names for the licensing regime and the senior persons regime and, I hope, to some of the matters that I have raised this afternoon. I hope that the Minister will be able to update the House on these areas and that the news can be welcomed by myself and my colleagues.

Lord Davies of Stamford: My Lords, I remind the House that for a number of years I was a director of a quite large British investment bank—in those days called a merchant bank. We had a substantial lending book as well as a much bigger investment banking business. The firm was the basis of the present London activities of Deutsche Bank.
	The noble Lord, Lord Lawson, said earlier that we were focusing on an area where we could actually use legislation to address effectively a major human problem. It is not always possible to address human problems with legislation—he is absolutely right about that. We have spent much of the afternoon talking about separation and ring-fencing, which is important because there is a theoretical risk that any institution could be destabilised for example by speculation in high-risk instruments such as derivatives and that could undermine the rest of the business. That is a theoretical risk; it is sensible to address it and think about it. It has to be managed. It is not actually the reason why we had the collapse in 2008 or any of the recent banking difficulties.
	Similarly, the much praised Glass-Steagall regime, which existed in America between the 1930s and 1980s, was premised on the theoretical risk that if an institution could be involved in both underwriting securities and making loans, and that if the underwriting losses were such as to compromise the capital of the bank, the deposits of the bank would be at risk. Again, that is a straightforward, plausible, coherent risk that it is sensible to address but that was not the reason for the banking crisis in America in the 1930s. I will not waste time by going into the reasons for that crisis. Nevertheless, it was a sensible thing to do.
	We have been talking up to now about theoretical risks. I do not resent or reject that and I very much agreed with—and just voted for—my noble friend Lord Eatwell’s amendment to try to deal with some of those risks. Now, however, we are on the really key ground, because Amendments 21 and 51, in the names of my noble friend Lord Eatwell and the most reverend Primate, address the real problem that we have encountered face to face in this country in the past few years. That is human error, and even worse than human error, human negligence—and even worse than that, systematic human negligence and systematic human incompetence. I do not think that those words are in any way excessive to describe the activities of the British banking system, and banking systems elsewhere, in the past decade and a half.
	Before 2008 there were an enormous number of bankers who appeared to be able to persuade themselves, and their boards, that when yields were coming down in the market, they could somehow preserve their yields without increasing their risk. In other words, fantastic sums of money were paid to people who appeared to be competent, whom the regulators seemed to trust—as we now know, the regulators were asleep at the time—and who appeared to have completely forgotten the first rule of financial theory, which is that there is always a positive relationship between reward and risk: if you get more of one, you will always have more of the other. That is an extraordinary state of affairs to have in a sophisticated society, but that is exactly what we had.
	Again, this was systematic. It was not just one bad apple, or one bad individual. In the process of trying to preserve their yields, banks were putting enormous amounts of their assets into new instruments such as CDOs—collateralised debt obligations, which were, basically, securitised mortgages and other loans—without ever investigating what they actually contained. They acted simply on the basis of endorsements by rating agencies that were themselves incompetent. It is hard to imagine the state of Denmark being more rotten than the state of the City at that time. It was an extraordinary systematic problem. People were, for example, lending on real estate with 5% or less equity. They were making absurd and dangerous mistakes, doing things we cannot imagine they were not told about when they were 25 and doing their accountancy exams, or an economics course. We have to focus on that human area and ensure that we have procedures, filters and incentives that are robust and not perverse. Evidently, in this area we have been absolutely inadequate up to the present time.
	We are making some progress this afternoon. These two amendments are moves in the right direction. We must ensure that we have the right professional qualifications and the right conduct standards, so that people are being properly monitored. We could—indeed, we should—go further afield and do more, particularly in terms of making individuals responsible. In the United States, when there are serious cases of negligence and breach of the rules, not only is the institution fined—institutions are fined here—but individuals are regularly fined. Individuals are never fined here. In this country, the people making the appalling mistakes that I just referred to have got away scot-free, without paying a penny. That is a national scandal; indeed, it is a national stupidity. It means that there is a real moral hazard: if you can get away with the irresponsibility, the money is for you—“Well done, congratulations”—and if you do not get away with it, you still will not pay anything.
	That is why we had the appalling culture of bonuses, in which people in lots of institutions were regularly piling on to their book a whole lot of supposedly high-yielding rubbish and then taking massive bonuses based on the discounted present value of the supposed yield over future years. Then, when they got a large bonus on that completely bogus basis, they would move on to another institution and spread their poison further through the system in that way.
	I have described this in dramatic language, and I do not think that I have exaggerated in any way. That is the awful reality of the situation. It is something that regulators—and the public—ought to think about. It is certainly something that legislators must think about. I congratulate the most reverend Primate and my noble friend on their amendments, which we should put to the vote. I hope that they do so, and I look forward to supporting them.

Lord Phillips of Sudbury: My Lords, I support Amendments 21 and 51 as strongly as I can. We all know that the vast majority of people in the City of London and other financial centres are decent people who try to do good rather than bad, but the system of
	which they are part has been largely stripped of its ethical underpinning. Although you cannot inculcate morality by statute law, you can at least provide support for the forces of good and truth in dealing.
	These two amendments are the very minimum required. I wonder whether the wording of Amendment 51, which refers to “rules of conduct”, is ideal. As a lawyer, whenever I see the word “rules”, I slightly draw back, because lawyers spend their time avoiding rules on behalf of their clients.
	I would have hoped, and still hope, that if either or both these amendments were incorporated into the Bill, they would be construed in a wide way. There is no shadow of doubt but that too many people arrive in positions of responsibility without regard to these rules. As the most reverend Primate said, you can have a junior dealer who can cause devastating damage to a bank or other firm. So I hope that the Government accept these amendments or agree to come back at Third Reading with something comparable, bearing in mind the astonishing fact that the vast majority of our business schools have no ethical component in their curriculum at all. I do not think that 10% of them do anything in terms of ethics. If anyone says to me that it is a waste of time and a lot of hot air, they need only glance back at where we have come from. As other noble Lords have said, the degree of cynicism manifest in the policies and actions of so many financial institutions is stunning.
	I hope that, if these amendments are brought into the Bill, they are construed widely by those who have to implement them. I am particularly happy that Amendment 51 would require any breach of standards of conduct to be reported to the relevant authority, because that is a real deterrent. People would be anxious about that. This proposal must be the absolute rock-bottom minimum to provide some underpinning for the future of financial services.

Lord Flight: My Lords, I come down to a very practical issue. In the territory that we are discussing, pre-approval is absolutely necessary for dealing with staff and anti-money-laundering requirements.

Baroness Warnock: My Lords, I support this amendment, which we have heard is really at the heart of the disasters of 2008. I have felt a creeping horror since the 1980s, when I was head of a college. People would frequently come up to me and say, “I’ve changed my mind, I’m not going to go on to a further degree or teach classics—I have had an offer that I can’t refuse”. This would be a young man or woman of about 21. You could see that their ethical standards had dropped away; they did not exist anymore. That was a shock to me then and it has been a shock to me ever since, so I very strongly support the amendment.

Lord Hope of Craighead: I shall add just a bit, particularly to what the noble Lord, Lord Phillips, was saying. When I entered the legal profession about 40 years ago, the branch that I joined had no rules of conduct at all, and gradually we appreciated that the public would not stand for that. The position now is that the legal profession has rules of conduct, although they are sometimes called codes rather than rules for
	the reason that was mentioned. I support the amendment against that background. I also suspect that, if we do not take that step now, we will have to take it in five or 10 years’ time when some other crisis emerges. It is an important step and, I respectfully suggest, an inevitable one, in line with what all the professions have had to deal with over the past 10 or 20 years in modernising how they behave and making their behaviour acceptable to the public. There is a lot to be said for the amendment against that background.

Lord McFall of Alcluith: I do not think that we should run away with the idea of codes of conduct because, if you look back over the past 10 or 20 years, you will have seen a proliferation of codes of conduct and ethics from banks. When they had rules, they circumvented them, so we must have something deeper here.
	On the Parliamentary Commission on Banking Standards, if we heard the phrase, “This time it’s different”, once, we heard it 10,000 times. We were told that there was new management and a new executive, that the past was behind us and the future here, with new staff—and that everything would be better. Since we have taken evidence, tumbling out every month there has been another scandal. So we need to attest to something deeper here.
	The lack of individual responsibility at the top is at the core of the problem. I say this with no understatement: many of the very senior individuals who came before the Parliamentary Commission on Banking Standards were economical with the truth. I give an example on PPI, where we now have a scandal of about £25 billion to £30 billion. There was a “no see, no tell” policy from those at the top. Why? Because they preferred to be seen as incompetent than to have any responsibility. There was a hiatus of responsibility from the top to lower down.
	My own view was not accepted by the banking commission, which was fair enough. I thought that every year there should be an individual meeting between the chairman and chief executive of a bank and the regulator. That meeting would be recorded but it would not be made public—but they would have to attest to the regulator that they were responsible for their institution and what went on in their institution was their responsibility. If we implement a code, we will only repeat the mistakes of the past; there has to be a deeper cultural change.
	Culture has been mentioned. Again, we had individuals coming before us saying, “Look, we have a new chief executive and a new culture—everything is okay”. You would ask how many employers were in that organisation and be told that it was 150,000. When we asked how long it would take to change the culture, they said, “Oh, three months”. That is for the birds. So the responsibility needs to start at the top.
	The example I give of PPI is of a chief executive who came along to the commission and said, with a straight face, “As far as PPI is concerned, my organisation is on the side of the angels”. That organisation is the one with the highest PPI penalties in the United Kingdom. So do not let us kid ourselves that we can sort this problem with codes. We need to give the regulator authority—and we have seen a regulator
	that was captured, cowed and conned by the industry. There should be someone to go to in the organisation to whom we can say, “That was your responsibility”. If we are told, “Well, that person left”, we need to ask for the handover document that indicates that there was a transfer of responsibility that can be understood.
	The director of enforcement at the FSA came before the commission at the time of the UBS scandal, which cost the bank billions of pounds. We had four from the top management of the bank before us and, when we asked them if they knew who the individual was, they said that they did not know at all. Then we asked them how they found out, and they said, “Bloomberg wires”. That is how corrupt the institutions are in terms of accountability.
	We need to change. I am happy for the Government to accept this amendment, but I am certainly not happy for warm words or for anyone to say, “This time is different”. This time ain’t different. The scandal has kept going and will continue, and we need to do something severe to ensure individual accountability by those at the very top of those organisations.

Lord Spicer: I have enormous respect for the noble Lord, Lord McFall, but I think the idea of legislating to be more responsible—in fact, legislating for human character—is a very dangerous path. It is why I intervened on the question of minimum standards of integrity: you are either honest, or you are not honest. It is quite dangerous to keep loading the statute book with matters which attempt to affect human characteristics. I think that there should be some caution about some of these amendments.

Lord Newby: My Lords, this is a very large group of amendments dealing with another key aspect of the Government’s reform, namely how to drive up standards across the banking system. The Government’s amendments in this group, and in the following group, widen the range of firms covered by the reform. They respond to points made in Committee, and I am grateful to the noble Lord, Lord Eatwell, for his welcome for them, but we will deal with them in more detail when we come to the next group.
	I would like first to respond to the concern that the Government’s Committee stage amendments did not implement the commission’s recommendations for what it calls the licensing regime. To be completely clear, the Government are committed to implementing the vast majority of the commission’s recommendations on the regulation of individuals in banking, including its recommendations to introduce a licensing regime. The regulators, in their responses to the commission published in October, confirmed that they would do this.
	The Government’s amendments in Committee put in place all the essential features of the commission’s licensing regime proposals in Clauses 22 and 23. These clauses give the regulator power to make rules of conduct imposing binding standards on employees and ensure that the regulators can take action when there is any breach of these rules. The relevant provisions would form part of FiSMA and confer powers on the regulators in the normal way.
	However, we recognise that this may not be seen as giving the full weight and impetus to the commission’s proposals, so we are looking to see whether we can
	bring forward at Third Reading amendments which will highlight the proposals more and put beyond doubt the determination which we all share to see real change in this area. In the light of this, the Government are looking to introduce amendments at Third Reading to impose obligations on banks and PRA-regulated investment firms, first, to verify before appointing someone as a senior manager, an employee in a role that could do significant harm to the firm or another role requiring regulatory pre-approval, that the person is fit and proper to perform that role in the firm; secondly, to maintain up-to-date lists of such persons which could be made available to the regulators when required; thirdly, to notify the appropriate regulator when they take formal disciplinary action against such persons—formal disciplinary action could include giving a formal written warning, dismissal, suspension or clawing back remuneration; and, fourthly, to notify all such persons of the banking standards rules that apply to them. All these obligations will be regulatory requirements under FiSMA. Failure to comply with the obligations will be a breach of regulatory requirements, and actions could be taken against the bank concerned by the regulators. In addition, deliberately or recklessly submitting a materially false or misleading list of persons to a regulator will be a criminal offence.
	The Government will also look at tabling amendments requiring, rather than simply empowering, the regulators to set out those functions for which a bank must do the above. We anticipate that this class will match the category of staff defined in the PCBS report as being those whose actions or behaviour could seriously harm their employer, its reputation or its customers. I hope that when we produce those amendments they will satisfy the concerns addressed by the most reverend Primate.
	There are certain detailed respects in which the Government have decided not to follow the recommendations of the commission. These do not change the substance of the impact of the regime, but they will ensure its effectiveness. First, the commission envisages that the licensing regime provisions would entirely replace the regime of regulators, giving pre-approval to people below senior management level. That would mean dropping regulatory pre-approval for all appointments below senior management level, including in areas such as money laundering, with which the noble Lord, Lord Brennan, and others were particularly concerned in Committee.
	The Government thought carefully about that but decided it would not be appropriate to remove entirely the possibility of regulatory pre-approval below senior management level. There may be critical roles in banks at lower levels with important responsibilities in relation to protecting consumers, maintaining market integrity or preventing financial crime where prior regulatory scrutiny of appointments continues to be essential. The FCA will therefore also be able to require prior regulatory approval of appointments of persons who are to perform control functions designated in their rules. Both the Government and the FCA support the philosophy behind the commission’s proposal that regulatory pre-approval should be required only for
	senior roles. We expect that for banks the regulators will over time substantially reduce their pre-approval requirements for individuals who are not senior management. Further, I can confirm that the PRA will not be able to designate any functions except senior management functions as requiring regulatory pre-approval.
	Finally, I am aware that another concern of the members of the parliamentary commission is the name of the regime. The commission itself has spoken of a licensing regime, and we are happy to use that term as an informal title for the new regime. However, we do not believe that it is the right description for the regime the commission recommended. Anybody coming across the term “licensing regime” would naturally assume it meant that a licence would be granted by a regulator or some other public authority. That is, however, precisely what the parliamentary commission did not want.
	I hope that in any case we can all agree that the name given to the regime is not the most important thing. What matters is what it does. The regime we have legislated for cannot be called a licensing regime, but it delivers precisely what the parliamentary commission called for in its report. There will be a regime of regulatory standards for employees encapsulated in enforceable banking standards rules. Firms will inevitably have a role in ensuring their staff comply with those standards and taking action if they do not, while the regulator will be able to take action if needed.

Lord Lawson of Blaby: Before my noble friend sits down, can he give an undertaking that he will produce the further amendments he proposes to introduce at Third Reading in good time so that we can thoroughly evaluate them and decide whether they go far enough in meeting the commission’s requirements? There has been a tendency recently—I know that a lot of work is involved—to produce complicated amendments at the last minute which do not give noble Lords time to assess them properly.

Lord Newby: I have a great deal of sympathy with what the noble Lord says, and I can give an assurance that we will bring the amendments forward at the earliest possible point. I cannot say what day that will be, and we may of course have different definitions of “giving short notice”, but we will do our best to give the noble Lord several days’ notice. We hope that, as we get towards Third Reading, the number of amendments we bring forward will be much lower than at the previous stage.

A noble Lord: That’s not saying much.

Lord Newby: It is not saying a huge amount, but it is saying something, and I hope that because we are talking about a much smaller number of amendments we will be able to concentrate the entire brainpower of the Treasury on them so that we can bring them forward with the maximum possible notice.

Lord Davies of Stamford: Does the noble Lord agree that if we are to make a real difference this time—and he will sense a scepticism about that, which
	we face in this country and even in this House as a result of the appalling situation that we have had—we will need to emphasise, and really substantially emphasise, the issue of personal responsibility? Would it not in that context be necessary that individuals in this country should in future be subject to fines for regulatory breaches, as happens elsewhere?

Lord Newby: My Lords, that is the key focus of the senior managers regime—that, for the first time, senior managers and their banks will have to tell the regulators what the specific responsibilities of those people are, and we are introducing enhanced penalties if people do not stick to those responsibilities and break the rules. I think that we are indeed doing what the noble Lord requires us to do. I hope that when the noble Lord, Lord Lawson, and the most reverend Primate see our amendments, they will feel that we have done everything we could to meet their requirements.
	Amendment 21, proposed by the noble Lords, Lord Eatwell and Lord Tunnicliffe, is an amendment which we saw in Committee. As I explained on that occasion, it would really just rename the existing approved persons regime as a “licensed” persons regime. The only extra feature in the proposal is for annual validation of competence by the regulator. This would have the effect of increasing the number of approved person applications from around 30,000 to around 150,000 a year. This would mean an unnecessary and costly extra burden on firms and regulators.
	The Official Opposition’s amendment would not deliver the real reforms proposed by the parliamentary commission, which Clauses 14 to 26 of the Bill deliver and which we will enhance. It would just add to regulatory burdens without producing any real improvement in standards of conduct in the industry. I hope, therefore, that the noble Lords, Lord Eatwell and Lord Tunnicliffe, will agree to withdraw their amendment.

Lord Eatwell: My Lords, I was intrigued by the proposals which the Minister suggests will be brought forward at Third Reading and I look forward to having the opportunity to see them—perhaps in good time—before we have to debate them.
	The key issue in Amendment 21 is that of qualification: professional qualification, minimum thresholds of competence and continuous professional development. These are fundamental to any serious professional standards and are vital if we are to have in the future the sort of people who can deliver a banking industry of which we in Britain can once again be proud.
	I should make it clear that Amendment 21 is not in any way contrary to Amendments 50 and 51 by the commission; it is complementary. It adds to the overall structure of the requirements to be met by those who seek to pursue a banking profession. It is that word “profession” which we regard as central. It is no accident that we have labelled our amendment “Professional standards”. That is what this amendment seeks and that is what I believe it would achieve in addition to, and complementary to, the amendments by the commission and, as I hear it, the endeavours by the Government to develop a framework of rules which ensure that standards are met. The professional
	standards must be the bedrock. That is why I have moved Amendment 21 and why I wish to test the opinion of the House.

Division on Amendment 21
	Contents 222; Not-Contents 217.
	Amendment 21 agreed.

Clause 14: Functions for which approval is required
	Amendment 22
	 Moved by Lord Newby
	22: Clause 14, page 27, line 20, leave out “bank” and insert “relevant authorised person”

Lord Newby: My Lords, this group of amendments, and similar amendments in the previous group, respond to concerns expressed in Committee that the scope of the reform of the senior managers and banking standards regime should be extended beyond ordinary banks to cover what are known, in common parlance, as investment banks. A number of noble Lords were concerned about this point and I undertook to relay the feelings of the House to ministerial colleagues. These amendments are the result.
	The definition that we propose is that of the UK investment firms that are regulated by the PRA as well as by the FCA. This captures all those investment firms the activities of which—above all, substantial wholesale market dealing in securities as proprietary traders—are systemically important. These are the most important City firms, and consequently would be treated by the senior managers and standards regime in the same way that banks are. It therefore excludes all investment firms that are regulated solely by the FCA.
	The noble Lord, Lord Turnbull, tabled an amendment to a different part of the legislation that would have used the existing definition of “investment firm” in FiSMA. This would have encompassed investment firms solely regulated by the FCA. As explained in Committee, that would cover a wide range of ordinary investment firms—several thousand, in fact. This would include firms far outside what most people would think of as investment banks. The Government have shared this definition with the members of the PCBS and are hopeful that the scope now captures those firms that the PCBS had in mind.
	Noble Lords who have had the opportunity to read the paper placed in the Library yesterday know, as the noble Lord, Lord Eatwell, has pointed out, that it covers only nine further firms. They also know also that it covers the investment banks that everybody has heard of and would expect to see covered. The small number may be surprising, but the reason for that is simple. Many firms that would be thought of as investment banks will already have a deposit-taking permission, so they will already be covered by the
	definition in Clause 24. That definition is already broad enough to catch all retail and wholesale banks, whether ring-fenced or not. It covers any UK institution which has the permission to take deposits. It does not cover big City institutions which are not deposit-taking businesses. These amendments will bring them into the scope of the senior managers and banking standards regime. I beg to move.
	Amendment 22 agreed.
	Amendments 23 to 25
	 Moved by Lord Newby
	23*: Clause 14, page 27, line 22, leave out “bank” and insert “relevant authorised person”
	24*: Clause 14, page 27, line 28, leave out “bank” and insert “relevant authorised person”
	25*: Clause 14, page 27, line 29, at end insert—
	“(6D) For the meaning of “relevant authorised person”, see section 71A.””
	Amendments 23 to 25 agreed.
	Clause 15: Senior management functions
	Amendment 26
	 Moved by Lord Brennan
	26: Clause 15, page 28, leave out lines 4 to 7 and insert—
	“(b) those aspects involve, or might involve, a risk of—
	(i) serious consequences for the authorised person,
	(ii) serious consequences for business or other interests in the United Kingdom, or
	(iii) conduct or omissions by or on behalf of an authorised person otherwise than in accordance with the requirements of a relevant financial scheme giving rise to criminal liability.”

Lord Brennan: My Lords, I declare an interest, as I have done before, as chairman of Global Financial Integrity. In Committee, the Minister, the noble Lord, Lord Newby, said:
	“The scale of money-laundering is very large, and the Government and the regulators are determined to cut it down”.—[Official Report, 15/10/13; col. 406.]
	The phrase “cut it down” was prudently chosen. Money-laundering, in its widest sense, never goes away. By “its widest sense”, I mean any attempt to create an illicit flow of money for illegal objectives: money-laundering, drugs, terrorism, bribery—whatever it might be. I will use the term in that sense throughout what I am about to say.
	The purpose of this group of amendments in my name and that of my noble friend Lord Watson is to identify as clearly as possible a legislative framework within which our banks can be regulated and monitored so as to achieve one of the Financial Conduct Authority’s objectives: to preserve the integrity of the British banking system. I will deal with them briefly. Amendment 26 deals with a scope of responsibility of senior management so as to specify, in a very broad phrase,
	“a relevant financial scheme giving rise to criminal liability”.
	That is carefully chosen as an omnibus phrase to cover all the kinds of money-laundering activities that I have just described and relates such irresponsibility directly to senior management.
	Amendment 28 deals with two issues: redundancy and specificity. “Redundancy” is in inverted commas because it was suggested in Committee that these changes were entirely unnecessary. Plainly, the Financial Conduct Authority and everybody else have a duty to obey the law—of course they do. However, equally, legislation has a component in it that should be designed to relate the existing law to the specific responsibilities to be carried out. No harm is done by such identification, and clarity is achieved. Nobody can say that they did not know. On specificity, subsection (4)(a) of proposed new Section 59ZA in Amendment 28 deals with a general provision for dealing with these schemes that might produce criminal liability. Paragraph (b) sets out the main statutes under which such activities can arise. Paragraph (b)(viii) makes clear that the FCA and the PRA themselves can refer to other relevant statutes, regulations or the like as they think appropriate and are specified in their rules.
	Amendment 30 is an attempt, in substance, to achieve the objective of making all persons responsible who engage in money-laundering activities, so that there are no loopholes between different levels of staff and management. Amendments 45 and 47 would provide that the FCA and PRA should, in the banking standards rules, make rules about money-laundering similar to the effect of what these amendments seek to achieve.
	I suspect that the velocity with which this legislation is being managed by government managers is certainly not matched by the capacity of the Treasury officials and Ministers to keep up on the days on which they have to explain what is going on. That certainly makes it extremely difficult for us, when dealing with matters of such grave importance, to be able to ensure that debate is comprehensive. Therefore, the noble Lord, Lord Newby, having stated in Committee a month ago that he would write to me to explain why my amendments were unnecessary, in a way did so at 9 pm last night, when an e-mail arrived from a Treasury official which enclosed a note from the Financial Conduct Authority. I hope that he has had time, as I have this morning, to read it, if it represents government policy on the question.
	I will turn to that important piece of information from the Financial Conduct Authority about money-laundering in a moment. However, it refers to the annual report of the anti-money-laundering activities of the Financial Conduct Authority, published in July of this year, which I had not previously seen. The Financial Conduct Authority was set up with effective powers on 1 April this year, eight months ago. That is certainly long enough to find out what the problem is and its scope, but probably not long enough properly to devise all the measures that are necessary to combat the problem. Your Lordships will be enlightened by the following conclusions of the FCA anti-money-laundering group. First,
	“We concluded that it was likely that some banks were handling the proceeds of corruption and other financial crime”.
	Secondly:
	“More recently, our … review … found that most banks, including a number of major UK banks, were not giving adequate attention to money laundering red flags in trade finance transactions”.
	Lastly:
	“The root cause of these problems is often a failure in governance of money laundering risk, which leads, among other things, to inadequate anti-money laundering resources and a lack of (or poor quality) assurance work across the firm”.
	That is within the past eight months, after the banking crisis and during the passage of this Bill. Do we need any better evidence of the gravity of this problem than what I have just summarised? The report says that, in seeking to achieve its objective of integrity in our financial system, the Financial Conduct Authority will issue annual reports to meet the increasing public interest in this problem. Finally, they will do everything, in so far as they can, with transparency. Those are excellent objectives.
	I turn to the note, which I assume is what the Government intend the Financial Conduct Authority to do. First, it says that combating this problem is a “priority”. Secondly, it says:
	“Our approach is intensive and intrusive”.
	Further, it will “take enforcement action”, as it has done against two banks; one last year, one this year. Finally, it will seek to intervene early. In the light of this note, as I understand it, it is the Government’s view that the Financial Conduct Authority should police this sector without further statutory change. I invite the Minister to confirm the following: first, that the Government have no reason to doubt the reliability of the annual report’s conclusions; and, secondly, that they undertake properly to finance the anti-money-laundering group in the Financial Conduct Authority. It has about 100 cases a year and polices 14 major banks and many other firms; yet the group, by the end of this year, will have increased its staffing numbers from 17 to 22. That is an extraordinarily low number of people to combat such complicated and wide-ranging money-laundering problems. Is there to be a financial commitment? Lastly, on the note itself—put out last night as, I presume, a summary of the Government’s view of what should be done—will the Government say clearly whether it is their policy that that which is set out in this document is what the Government intend should be done by the Financial Conduct Authority on behalf of all of us in combating money-laundering?
	The problems of banking affect everyone and they have done so in recent years. There are many problems to be dealt with in these debates. The one thing, surely, that must be dealt with adequately is criminality associated with banking; that is, criminality—criminal offences—not just one risk-take. It is a remote second for most people but has an enormous financial impact. I call on the Government and the Minister today to state with absolute clarity their position on the points that I have raised and on which I have invited them to agree. I beg to move.

Lord Eatwell: My Lords, in the past, anti-money-laundering legislation tended to be associated with crime, typically drugs or gun-running. These days it has achieved a much greater importance in the sense that it is also associated with terrorism. Therefore, the need to maintain the strictest anti-money-laundering
	rules and to ensure that they are adequately enforced is an element not only of the maintenance of the law, but of national security. Therefore, I would like to commend my noble friends who have put forward these amendments to strengthen the anti-money-laundering regime and to ensure that appropriate levels of criminality or criminal conduct are so defined within this area that suitable penalties for ignoring anti-money-laundering legislation or laundering money in various ways can be enforced.
	I hope the Government will accept these amendments; they are hugely important and send a very important signal to the world that London is not a place in which money-laundering will be tolerated in any shape or form. If the Government are not able to accept them at this stage, I hope they will commit to providing in writing both a commentary on the amendments that my noble friend has put forward and a discussion of the relationship between the new personal responsibility mechanism for bankers and the AML compliance. Surely AML compliance should be included as one of the areas of responsibility that is allocated to a named senior banker under the new senior person regime; it should be in the banking standards rules to which all staff at banks will have to adhere, and one of the conditions of the new remuneration code, which makes deferred pay and bonuses contingent on upholding standards. There is no more important standard than those which my noble friend has dealt with in his amendments. I hope that the Government will be able to accept them—if not actually in form, then in spirit—and commit to bringing forward the appropriate form, if necessary, at Third Reading. The best move, however, would be to accept them now.

The Archbishop of Canterbury: I want briefly to add my support to the amendment of the noble Lord, Lord Brennan. Money laundering affects not only the areas that have been mentioned, but in my 10 years’ experience of dealing with conflict management and mitigation work in Africa, it was particularly significant in the ways in which illegal regimes or militias managed to fund and supply themselves. My experience, particularly in some parts of Africa, has shown that London, over time, as one of the deepest and most liquid financial markets on earth has, contrary to the impression given by many senior bankers, played a significant role—not through their collusion in any way at all, but because of its size and the complexity of preventing it. I believe that this amendment and the suggestions put forward by the noble Lord, Lord Eatwell, will contribute extensively to restricting that.

Lord Flight: My Lords, all Members of this House are what is known as PEPs for the purposes of anti-money-laundering. This means that any bank has to pay extra-special attention to any of our transactions. It is perfectly justified. The thought crossed my mind—and I have great sympathy with the noble Lord’s aspirations—that money laundering for corrupt purposes, for armaments, for terrorism and the rest of it, does not particularly come from an ordinary British family living in a suburb. It comes very much from parts of the world where such things are more prevalent. There
	is a case for requiring a more judicious anti-money-laundering regime for any form of transfer that comes from such parts of the world in an analogous fashion to a PEP if we really want to get to grips with the horrific money-laundering that can come from some parts of the world, causing misery to citizens there. As arrangements presently stand, there is no difference between an evil regime somewhere and an ordinary British citizen living in Birmingham.

Lord Harris of Haringey: As I understand it, the money-laundering regulations specifically exclude British citizens, including parliamentarians, from their scope. What has happened is that the banks, as a matter of policy, following what they expect to be European directives on this subject, treat British parliamentarians as though they are politically exposed persons. The actual regulations do not.

Lord Flight: I think the noble Lord may be right, but in practice, we are thus treated as a more dangerous category. I was merely using that as an example of how the more obvious areas of money-laundering offences might be more carefully policed.

Lord Watson of Invergowrie: My Lords, I am pleased to associate my name with all five amendments in this group, but I also want to speak to some extent about the FCA note which appeared at about 9 o’clock yesterday evening—typically late in the day, not just literally, as regards the progress of this Bill. I reiterate the point made by my noble friend Lord Brennan that the Government have provided no grounds for reassurance that their amendments adequately deal with the serious issue of anti-money laundering. The fact that the Minister’s promised letter of comfort has not materialised demonstrates that the House should be concerned by the absence of any coalition assurances on this crucial issue. I am not sure whether the FCA note is intended to be in place of such a letter, and I will come on to that later. However, I said in Committee that not only were the Government naive to assume that the amendments we tabled then were unnecessary, they were also complacent. I very much regret to say that the failure to produce the letter setting out the Government’s position which my noble friend Lord Brennan was promised clearly suggests that that complacency remains intact.
	We also heard in more general terms in Committee about the devastating human cost caused by the banks’ failure to comply with anti-money-laundering laws. That has not been mentioned this evening but it bears repeating: it is not just a question of what happens in relation to the financial sector in this country but also of money laundering that often amounts to the state looting of developing countries’ aid and haemorrhages billions of pounds from their national budgets, trapping millions of the world’s poorest people in extreme poverty. However, as mentioned in the previous debate, it also threatens the economy of the UK. The integrity of our financial system is hugely compromised by banks failing to prevent access by the worst types of criminals from around the world, whether they be corrupt dictators, drug smugglers, arms dealers or
	terrorists, as other noble Lords have said. This shows that the stakes could not be higher. I wish that that were reflected in action taken by the Government to counter this problem. It makes their lack of willingness to deal meaningfully with the issue quite unfathomable. Their continuing naivety is potentially dangerous. I apologise for using the word “naivety” again but I feel that I have to do so.
	As the noble Lord, Lord Phillips, rightly noted in Committee, should there be any doubt, following the Minister’s letter, about whether the Government’s amendments adequately dealt with money laundering or not, the House should err on the side of caution and choose the alternative amendments. We now know that no such letter has materialised. My noble friends and I have taken great care to move new and refined amendments which reflect the extensive and helpful debate in Committee. In stark contrast the Government have not even offered the explanation they promised. This should leave the House in no doubt as to which set of amendments should be favoured.
	I turn to the note from the Financial Conduct Authority that appeared yesterday evening. My noble friend Lord Eatwell said in his opening remarks on Amendment 3, I think, that everything seemed to be done at the last minute as far as the Bill is concerned, and that has been very much the pattern since it first appeared. It is unhelpful in terms of enabling noble Lords to respond meaningfully to new information or, indeed, to draft amendments. It is not clear whether the FCA note on its anti-money-laundering supervision and the new senior managers regime proposed in the Bill is in lieu of the Minister’s letter to my noble friend Lord Brennan, as I said earlier. That letter was intended to outline why the latter’s amendments seeking the explicit inclusion of anti-money laundering in the new senior persons regime and other personal liability mechanisms were unnecessary because the government amendments implicitly did this. However, I submit that the note does not achieve what is required; namely, a guarantee that the FCA will include anti-money-laundering compliance as a key risk and make every bank name a senior banker with personal responsibility for it.
	The FCA’s note is largely about what it does and has done, and even refers to what the FSA did. There are just two paragraphs at the end which focus on the proposed new senior managers regime. As the Bill stands, this could give the FCA the power to hold named, individual senior bankers accountable for failures to uphold key standards and risks. However, it seems to me there is a loophole in the Bill which means that it will be left open to the FCA’s interpretation as to whether it uses this power and insists that anti-money-laundering compliance should be one of the issues covered. The note does not indicate that the FCA will include this. It uses terminology such as, “We will consult”, “This will allow firms”, and it, “will help regulators”. These are key phrases in any document but I suggest that they are weak, possibly ambiguous and certainly open to interpretation. I believe that the word “consult” simply means that the outcome is by definition not certain. We should require firms to do something, which is a stronger word than “allowing” them to do something.
	My next example is fundamental to the way we deal with anti-money laundering. Instead of the phrase, “for example, anti-money laundering systems”, we should state unequivocally, “including anti-money-laundering systems”. The language that is used is permissive and uncertain rather than being mandatory, which is what I and the noble Lord, Lord Brennan, seek to achieve with these amendments. The content of the note is disappointing and it would be helpful to have clarification of whether it is provided in lieu of the Minister’s letter.
	I believe that anti-money laundering compliance should be included as one of the areas of responsibility that is allocated to a named senior banker under the new senior persons regime, is written into the banking standards rules to which staff at banks will have to adhere, and should be one of the conditions of the new remuneration code which makes deferred pay and bonuses contingent on upholding standards. Will the Minister, on behalf of the coalition, ensure that these important requirements are included?

Lord Newby: My Lords, we are dealing here with an issue that everybody realises is an extremely important one in terms of the way banks behave and the way that they are seen to behave. As the noble Lord, Lord Eatwell, pointed out, the importance of money-laundering in financing terrorism has given it an added twist.
	These amendments are an expanded version of an amendment tabled by the noble Lord, Lord Brennan, in Committee. Since then, my colleagues in the Treasury have met the noble Lord and explained their view of his original amendment. I hope I can convince the House that the Government’s approach meets the requirements which the noble Lord, Lord Brennan, seeks to impose. These amendments would expand the scope of the senior managers regime to include all persons who are responsible for ensuring that a firm complies with specific obligations under the criminal law, irrespective of the level in the organisation at which they work.
	No one doubts the importance of robust action to tackle financial crime such as money-laundering, but I can assure your Lordships that these amendments are not necessary to ensure that financial crime is adequately addressed under the reforms that the Government are bringing forward.
	These amendments would bring subordinate staff with relevant responsibilities within the scope of the senior managers regime. That could lead to confusion at least and is contrary to the PCBS recommendation to narrow the senior persons regime to very senior people, and parts of the regime, such as the reversal of the burden of proof, make sense only when applied at the senior level. It is not necessary to bring subordinate staff with specific responsibilities for financial crime within the senior managers regime in order to ensure that these staff are subject to enhanced regulatory scrutiny. It will still be possible for the FCA to ensure that appointments of persons to be money-laundering reporting officers, for example, will be subject to prior regulatory scrutiny and approval under the approved persons regime, if that is considered appropriate, and then subject to rules and standards applicable to their
	role. This is because the approved persons regime is being retained for financial services firms that are not banks. It is also being retained within the banking sector for appointments below senior management level. The Government have always considered this necessary as there may be critical roles below senior management level with important responsibilities for consumer protection, market integrity or preventing financial crime where prior regulatory scrutiny of appointments remains necessary.
	In addition, of course, the regulators will have the ability to make rules of conduct for bank employees who are not approved persons. This will mean that rules of conduct can be applied to staff with more limited roles in preventing financial crime in banks, as well as to approved persons and senior managers.
	There is also no need to refer explicitly to breaches of the criminal law to bring senior managers with relevant responsibilities within the scope of the senior managers regime. Under the Government’s proposals, a function can be designated as a senior manager function if a person holding it would be responsible for aspects of the bank’s business that could involve serious consequences for the bank, or for business or other interests in the United Kingdom. There is no doubt that a serious breach of criminal law could have serious consequences for the firm as well as for other people. So senior managers in this area would be covered by this new regime.
	The noble Lord, Lord Brennan, asked me three specific questions and for assurances on those points. First, he asked me to confirm that there was no reason to doubt the reliability of the conclusions of the FCA paper. There is no reason to doubt them. Secondly, he asked whether the FCA was properly financed to undertake the level of activity required for it effectively to fulfil its responsibilities under the rules on money-laundering. The FCA budget, as he will know, is funded by the sector as a whole. The FCA is therefore unconstrained, in practical terms, regarding its budget. It is for the authority to determine the resources that it thinks it requires and it can then get them. So no budgetary constraint is imposed on the FCA which reduces its ability to employ as many staff as it feels it wants in this area. Thirdly, he asked whether the FCA represented government policy. The FCA does represent government policy. I am sorry that the note was transmitted later than would ideally have been the case but that in no way undermines its significance as a definitive statement of government policy in this area.
	I recognise the concern that noble Lords had in Committee, and still have, in this area. It may be of some minor comfort to know that since Committee I have had a meeting with one of the senior relevant staff at one of the largest UK banks to discuss whether, in its opinion, the FCA was pursuing money-laundering with greater rigour than had been the case in the past. The bank said that the FCA was doing so. It also said that the bank itself had recognised that it simply had to give greater priority to this area.
	Two things must happen if we are to achieve the level of compliance that the noble Lord would like. The first, which the noble Lord has concentrated on
	now, is that the FCA has to do its job properly. As I say, it is putting more resources in and is being, as it states in its list of objectives, more intensive and intrusive. Secondly, as we have discussed in relation to a number of other areas, the banks have to accept that they must adopt a zero tolerance approach to money-laundering. It is clear from the evidence which the parliamentary commission received, and from much other evidence, that this has not always been the case. I believe that the banks are giving a priority to this that they have not done in the past. Is it adequate? It is a great improvement, but it will take some time to be fully clear about whether it is adequate. However there has been a sea change which has been effected in part by the regulatory regime and in part by the pressure put on the banks by a whole range of external stakeholders, not least your Lordships’ House.
	The noble Lord, Lord Eatwell, suggested that a further letter might be of help between now and Third Reading to confirm the exact position. I am happy to agree to provide a letter in the terms that the noble Lord suggested. With that assurance, I hope that the noble Lord, Lord Brennan, will feel able not to press his amendments.

Lord Watson of Invergowrie: Perhaps the noble Lord could clarify something. He made it absolutely clear that the FCA note represents government policy. It therefore seems strange that that policy is allowed to be as—shall I say?—ambiguously worded as the FCA note is. It is of concern that it is left that way. Will he commit to write to the FCA before Third Reading to ask it to make anti-money-laundering explicit in the personal responsibility requirements of senior bankers?

Lord Newby: My Lords, I will cover that issue in my letter. I am sorry that the noble Lord thinks that the FCA note is ambiguous, because the fact that it is giving greater priority to this issue and being more intrusive and energetic should give him some comfort. However, as I say, I will write to him.

Lord Brennan: My Lords, first, I had a meeting with officials from the Treasury, the content of which was, in short form, declaratory and, in long form, advisory. It was declaratory when I explained to them that I and my colleagues with whom I am working on this problem were convinced that these amendments were necessary and that the Treasury officials and the Home Office man who was there should revise their thinking accordingly. So they informed our side of the argument of nothing new, except that they felt that they were right. The advisory part of the meeting related to a simple proposition that took a little time to adumbrate. I invited them—both officials were, I am sure, competent young government lawyers—to take advice on this issue and on the terms of the offence, which we shall turn to shortly, from senior Treasury counsel who would be independent and objective as to whether the government views on the strength of the Bill on this point were correct. I do not know whether that has been done. The fact is that the meeting took place but was not productive.
	There are times in legislative life when those who see cannot persuade the blind where they are going. In Amendment 30 no attempt is made to disadvantage junior staff and every attempt is made to ensure that senior staff are not allowed to use the fault of junior staff as an excuse for their own responsibility. That is what that amendment is plainly directed at. It makes the senior management’s job crystal clear. It is necessary to consider what the Minister has said in reply and, for the moment, I beg leave to withdraw the amendment.
	Amendment 26 withdrawn.
	Amendment 27
	 Moved by Lord Mackay of Drumadoon
	27: Clause 15, page 28, line 11, at end insert “but excludes the provision of legal advice in taking decisions or participating in the taking of decisions”

Lord Mackay of Drumadoon: My Lords, the amendment seeks to amend Clause 15, and I will speak to Amendment 49, which seeks to amend Clause 22.
	When those clauses were introduced into the Bill in Committee they provoked a measure of interest and concern on the part of the Law Society of Scotland, which suggested amendments to be introduced on Report. For that reason, it is necessary that I declare an interest as having been a qualified lawyer in Scotland since 1971, initially as a solicitor and thereafter as counsel at the Scottish Bar.
	I mention that with a measure of diffidence, having regard to the comments made earlier about the ethical training of lawyers in general. Joking apart, it is right that your Lordships should be aware that the introduction of these two clauses gave rise to the concern to which I have referred.
	I offer no criticism about this because I am aware that on the second day in Committee a considerable volume of amendments were dealt with, but the amendments that introduced Clauses 15 and 22 took place without any detailed discussion. Clause 15 would add an additional section, Section 59ZA, to the Financial Services and Markets Act 2000, the terms of which are relevant to determining whether the carrying on of a controlled function in relation to a regulated activity of an authorised person is for the purposes of the Act “a senior management function”.
	Clause 22 would add a further section to the 2000 Act, Section 64A, which gives the Financial Conduct Authority and the Prudential Regulation Authority power to make rules of conduct for approved persons. Clauses 15 and 22 have given rise to concern from the Law Society as to how their provisions impact on the duty of Scottish solicitors to maintain confidentiality in all their dealings with their clients. As your Lordships will be aware, solicitors in Scotland are regulated by the Law Society of Scotland. They are bound to observe their professional obligations and are liable to be sanctioned at the instigation of the Law Society if they fail to meet those obligations. The duty of confidentiality is set out in detail in the Law Society of Scotland’s Rule B1.6. It places a duty on solicitors not to disclose information about their clients, including
	communications between solicitor and client unless permitted by the client, or compelled by a court or Parliament to do so. This ethical duty of maintaining confidentiality provides for checks and balances, as a solicitor is never the final judge as to whether the information must remain confidential. Legislation and court process, as well as client consent, provide means by which information might legitimately be disclosed. The policy considerations behind this rule of confidentiality are that the rule affords full and open exchange between clients and their lawyers. It also helps to ensure that full and frank advice is provided.
	Legal professional privilege, which is also mentioned in the amendments, has a similar, albeit not identical, effect. It protects from disclosure confidential communications and evidence of those communications between a professional legal adviser and their client, provided the communications are for the purposes of preparing for litigation or the client seeking and receiving legal advice. For these purposes, the tendering of legal advice is not confined to informing a client what the law is; it includes the solicitor or counsel involved giving advice as to what action the client should prudently and sensibly take in the relevant legal context.
	The need for these amendments was, as I have indicated, identified by the Law Society of Scotland, having consulted a number of its members. It sent earlier drafts of the amendments to among others, the Treasury and the noble and learned Lord, Lord Wallace of Tankerness, the Advocate-General for Scotland. The Law Society and I are grateful to the Treasury and indeed the Advocate-General for responding to that approach and giving us an indication of the Government’s thinking on the issues involved. Before saying a few more words about the details of the amendments, I think it right to note that other regulatory bodies in the United Kingdom which have members who are either solicitors or counsel may have similar interests in the subject matter of these amendments.
	The arguments in support of Amendment 27 to Clause 15 can be put very shortly. They relate to the terms of the new Section 59 of the 2000 Act. Those provisions appear to open up the opportunity of legal advice given to a bank by a solicitor being deemed, whether by the Financial Conduct Authority or the Prudential Regulation Authority, as amounting to the taking of decisions or alternatively,
	“to participating in the taking of decisions, about how one or more aspects”,
	of a serious management function should be carried on. If such a view could be taken of the actions of a solicitor, such actions could be deemed to provide a factual basis for determining, in terms of new Section 59ZA(1) of the 2000 Act, whether a function within a bank is a “serious management function”. The Law Society is concerned that such events might lead to an erosion of the distinct professional relationship between solicitor and client and the obligations that solicitors undertake to provide advice to the client.
	What is unclear from new Section 59ZA(3) is whether the Government intend that such solicitors, advising on legal issues alone, will also be considered as having participated in the taking of decisions. The Law Society of Scotland considers they should not be and it believes
	that that should be made clear in the Bill. That is what Amendment 27 seeks to achieve. If the Minister takes a different view, I am sure he will recognise that this issue is a concern to members of the legal profession in Scotland and I respectfully invite him to explain to your Lordships his reasons for doing so, so that those lawyers will be made aware of them.
	The need for Amendment 49 arises out of Clause 22, which was introduced into the Bill on the second day in Committee. It would insert a new Section 64A into the 2000 Act, which would grant power to the regulatory authorities, the FCA and the PRA, to make rules of conduct for approved persons under Section 59 of the 2000 Act and persons who are employees of banks. Both categories could include solicitors, counsel and advocates in different parts of the United Kingdom. They would be under duties of confidentiality and legal professional privilege with regard to communication between agent and client.
	It seems abundantly clear that the rules of conduct made by the regulatory authorities could conflict with the duty of confidentiality on solicitors and with legal professional privilege as they are understood and apply in Scotland. Amendment 49 is designed to resolve any potential conflict. In particular it provides in the proposed new Section 64A(12)(b) that in the application of new Section 64A of the 2000 Act in Scotland, no professional legal adviser, either advocate or solicitor, could be required, under the rules of conduct made by the FCA or the PRA, to answer any question that he would be entitled to refuse to answer by virtue of any rule of law relating to confidentiality. In that important respect, it adds to the protection currently afforded to professional legal advisers by Section 413 of the 2000 Act, which severely limits the extent to which a person can be required under the 2000 Act to produce, disclose or permit the inspection of protected items. What Section 413 does not do is make any reference to a lawyer refusing to answer a question.
	There is concern that Section 413 of the 2000 Act as currently drafted would not entitle a solicitor in Scotland to refuse to answer questions posed in terms of rules of conduct made by either the FCA or the PRA, even though answering those questions would breach their duty of confidentiality to their client. The Law Society accordingly seeks to have this issue clarified. The society’s view, with which I agree, is that it is important to ensure that rules of conduct made in terms of new Section 64A of the 2000 Act do not place a solicitor who is either a senior manager or employee of a bank in a position where there would be a conflict between his or her duties under the rules of conduct and his or her duties as a professional legal adviser, duties that are regulated by the Law Society of Scotland.
	I argue in terms of both amendments that these issues should be addressed now and not deferred until such time as the FCA or the PRA seek to exercise the new statutory powers they are to be given. Against that background, I beg to move.

Lord Flight: My Lords, these amendments have the support of the Law Society of England and Wales as well as that of Scotland—certainly for Amendment 27.
	The issue is pretty clear. The objective is to ensure that the provision of legal advice is not to be construed as taking decisions or participating in the taking of decisions, and for situations where solicitors or other legally qualified professionals frequently give advice on decisions which a bank or other institution may take. They do not make the decisions, but purely advise on legal issues where the Bill is currently unclear as to whether advising would be included in,
	“participating in the taking of decisions”.
	Amendment 27 seeks to clarify the position.
	There is an irony here in that, as I understand it, Clause 15 creates a broad definition of a senior management function, and the term,
	“participating in the taking of decisions”,
	as currently drafted will capture legal advice. This could have some perverse results and disproportionate consequences, and a danger that all legal advice is considered as participating in decision-making. If that were to be the case, all banks’ lawyers might need authorisation from the Financial Conduct Authority to give legal advice, whereas of course they are already regulated through the Solicitors Regulation Authority.

Lord Newby: My Lords, I understand the concern of the noble and learned Lord and that of the Law Society about the position of lawyers under the new regime, and I hope very much to be able to reassure him.
	Amendment 27 would amend Clause 15, which inserts new Section 59ZA into FiSMA, which provides the definition of a senior management function. A person becomes a senior manager only if they perform a function which has been designated by a regulator as a senior management function and have been approved to perform that function by the appropriate regulator on the application of the authorised person; that is, the firm concerned. A senior management function is one that will,
	“require the person performing it to be responsible for managing one or more aspects of the authorised person’s affairs”,
	and that,
	“those aspects involve, or might involve, a risk of serious consequences—(i) for the authorised person, or (ii) for business or other interests in the United Kingdom”.
	It is therefore highly unlikely that the regulators would designate being a legal adviser as a senior management function simply because giving advice does not constitute management as set out in the definition of senior management.
	Clause 22 inserts new Section 64A into FiSMA, which allows the regulators to make rules of conduct for approved persons, including senior managers, and for bank employees. This implements the Parliamentary Commission on Banking Standards recommendation regarding the introduction of a “licensing regime”. This broadens the population who can be subject to the regulators’ rules, which could for example now apply to an in-house legal adviser in the capacity of an employee. In addition, the regulators already have a broad power to require firms to provide information, as set out in Section 165 of FiSMA. However, the regulators cannot make rules which would trump the
	protection of legal privilege. Section 413 of FiSMA provides expressly that no power under the Act can be used to require the disclosure of “protected items”. These are defined in terms which are materially identical to the definition of items subject to legal professional privilege in Section 10 of the Police and Criminal Evidence Act 1984. Consequently, FiSMA already prevents the regulator from obtaining legally privileged material.
	The noble and learned Lord’s amendment would also introduce a protection against the disclosure to the regulator of “excluded materials” as defined in Section 11 of the Police and Criminal Evidence Act 1984. This includes personal records generated in the course of business and held in confidence, human tissue and journalistic material held in confidence. Clearly, the regulators would not request some of the categories of material included in this section. However, in relation to confidential information such as that compiled during the course of business, it might be appropriate, and indeed sometimes essential, for the regulators to receive it. However, FiSMA itself provides strong protection for confidential information received by the regulators when carrying out their regulatory functions. Section 348 of FiSMA prevents any such information being disclosed to a third party except for very narrow purposes. Further, where any such information constitutes personal data, it would be subject to the Data Protection Act.
	The noble and learned Lord asked whether Section 413 of FiSMA covers communications as well as documents. I can give him that assurance. The section is not limited to documents, so regulators cannot require the disclosure of privileged communications. With those reassurances, I hope that the noble and learned Lord will feel able to withdraw his amendment.

Lord Mackay of Drumadoon: My Lords, I am grateful to the Minister for giving a very clear and detailed explanation of the Government’s position in regard to these very complicated statutory provisions. I always think that when you start running out of enough section numbers so that you have to add letters to them, it makes the construction of the contents of those sections much more complicated than it might otherwise be. For these reasons, I beg leave to withdraw the amendment.
	Amendment 27 withdrawn.
	Amendment 28 not moved.
	Clause 16: Statements of responsibilities
	Amendment 29
	 Moved by Lord Deighton
	29: Clause 16, page 28, line 18, leave out “bank” and insert “relevant authorised person (see section 71A)”
	Amendment 29 agreed.
	Amendment 30 not moved.
	Amendment 31
	 Moved by Lord Deighton
	31: Clause 16, page 28, line 29, leave out “bank” and insert “relevant authorised person”
	Amendment 31 agreed.
	Clause 17: Power to give approval subject to conditions or for limited period
	Amendments 32 to 38
	 Moved by Lord Deighton
	32: Clause 17, page 28, line 42, leave out “bank” and insert “relevant authorised person”
	33: Clause 17, page 28, line 42, leave out ““bank-related” and insert ““relevant”
	34: Clause 17, page 29, line 7, leave out “bank-related” and insert “relevant”
	35: Clause 17, page 29, line 24, leave out “bank-related” and insert “relevant”
	36: Clause 17, page 29, line 33, leave out “bank” and insert “relevant authorised person”
	37: Clause 17, page 29, line 34, leave out “bank” and insert “relevant authorised person”
	38: Clause 17, page 29, line 35, at end insert—
	“(7) For the meaning of “relevant authorised person”, see section 71A.””
	Amendments 32 to 38 agreed.
	Clause 19: Variation of approval
	Amendments 39 to 43
	 Moved by Lord Deighton
	39: Clause 19, page 30, line 29, leave out “bank” and insert “relevant authorised person”
	40: Clause 19, page 31, line 24, leave out “bank” and insert “relevant authorised person”
	41: Clause 19, page 31, line 29, leave out “bank” and insert “relevant authorised person”
	42: Clause 19, page 31, line 32, leave out “bank” and insert “relevant authorised person”
	43: Clause 19, page 31, line 45, at end insert—
	“(6) For the meaning of “relevant authorised person”, see section 71A.”
	Amendments 39 to 43 agreed.
	Clause 22: Rules of conduct
	Amendment 44
	 Moved by Lord Deighton
	44: Clause 22, page 35, line 10, leave out “banks” and insert “relevant authorised persons (see section 71A)”
	Amendment 44 agreed.
	Amendment 45 not moved.
	Amendment 46
	 Moved by Lord Deighton
	46: Clause 22, page 35, line 20, leave out “PRA-authorised banks” and insert “relevant PRA-authorised persons”
	Amendment 46 agreed.
	Amendment 47 not moved.
	Amendment 48
	 Moved by Lord Deighton
	48: Clause 22, page 35, line 22, leave out from beginning to “and” in line 23 and insert ““relevant PRA-authorised person” means a PRA-authorised person that is a relevant authorised person (see section 71A),”
	Amendment 48 agreed.
	Amendment 49 not moved.
	Amendment 50
	 Moved by The Archbishop of Canterbury
	50: Clause 22, page 35, line 43, at end insert—
	“(7) This section applies only in relation to employees whose actions or behaviour could seriously harm their employer, its reputation or its customers.”

The Archbishop of Canterbury: I have already spoken to the amendment standing in my name. The members of the commission are delighted that the Government are broadly finding agreement with their recommendations, and on all the areas on which the Minister spoke we hope and expect that the government amendments at Third Reading will reflect closely the assurances that we have been given. To ensure that we get this right, we re-emphasise the need to see the amendments as early as possible and reserve the possibility, if we are not content and feel that they do not reflect what has been said, of returning to them at Third Reading. If I have those assurances, I will be happy to withdraw the amendment. I beg to move.

Lord Newby: You have those assurances.

The Archbishop of Canterbury: I beg leave to withdraw the amendment.
	Amendment 50 withdrawn.
	Amendment 51 not moved.
	Clause 23: Definition of “misconduct”
	Amendments 52 to 59
	 Moved by Lord Deighton
	52: Clause 23, page 36, line 19, leave out “bank” and insert “relevant authorised person”
	53: Clause 23, page 36, line 27, leave out from “of” to end of line 28 and insert “a relevant authorised person, an employee of the authorised person.”
	54: Clause 23, page 36, leave out line 36 and insert “a relevant authorised person,”
	55: Clause 23, page 36, line 38, leave out “bank” and insert “authorised person”
	56: Clause 23, page 36, line 40, leave out “bank’s” and insert “authorised person’s”
	57: Clause 23, page 37, line 2, leave out “an authorised person that is a bank” and insert “a relevant authorised person”
	58: Clause 23, page 37, line 5, leave out “bank” and insert “authorised person”
	59: Clause 23, page 37, line 17, at end insert—
	“(9) For the meaning of “relevant authorised person”, see section 71A.”
	Amendments 52 to 59 agreed.
	Amendment 60 not moved.
	Amendments 61 to 69
	 Moved by Lord Deighton
	61: Clause 23, page 37, line 27, leave out “PRA-authorised bank” and insert “relevant PRA-authorised person”
	62: Clause 23, page 37, line 37, leave out from “of” to end of line 38 and insert “a relevant authorised person, an employee of the authorised person.”
	63: Clause 23, page 37, line 46, leave out “PRA-authorised bank” and insert “relevant PRA-authorised person”
	64: Clause 23, page 38, line 2, leave out “bank” and insert “authorised person”
	65: Clause 23, page 38, line 4, leave out “bank’s” and insert “authorised person’s”
	66: Clause 23, page 38, line 11, leave out “an authorised person that is a bank” and insert “a relevant authorised person”
	67: Clause 23, page 38, line 14, leave out “bank” and insert “authorised person”
	68: Clause 23, page 38, leave out lines 33 and 34 and insert—
	““relevant PRA-authorised person” means a PRA-authorised person that is a relevant authorised person;”
	69: Clause 23, page 38, line 38, at end insert—
	“(9) For the meaning of “relevant authorised person”, see section 71A.””
	Amendments 61 to 69 agreed.
	Amendment 70
	 Moved by Lord McFall of Alcluith
	70: After Clause 23, insert the following new Clause—
	“Independent review
	After section 66B of FSMA 2000 (inserted by section 23 above) insert—
	“66C Independent review
	(1) The Treasury shall commission an independent report in relation to the effectiveness of—
	(a) any rules implemented under section 64A; and
	(b) any action taken by the FCA or PRA by virtue of section 66.
	(2) The Treasury shall ensure that the report prepared under subsection (1) shall—
	(a) include such recommendations as considered appropriate for legislative and other action;
	(b) be laid before Parliament by the end of 2018; and
	(c) be published in such manner as it sees fit.””

Lord McFall of Alcluith: This amendment is in response to government amendments to the Bill which amend the Financial Services and Marketing Act 2000. The amendment would require the Treasury to commission a review to provide an opportunity to evaluate the effectiveness of the regulators, particularly the FCA, in implementing and effectively enforcing new powers in relation to individual standards rules and the licensing regime.
	The amendment should allow for recommendations that may include the removal of powers from the current regulators or further separation within the current body. That would potentially allow for aspects covering licensing and individual standards rules to be considered for moving across to an independent professional body, should that be appropriate. That echoes the amendment that we on the Labour Front Bench successfully moved a short time ago.
	Given the competing priorities for resources—which have the potential to be compounded with the inclusion of consumer credit regulation in 2014 and the payments system regulation, if approved—there is the concern that the FCA may struggle to carry out this challenging role it faces. Therefore, an independent review can assess the effectiveness of the FCA and PRA in being able to implement the recommendations made by the Parliamentary Commission on Banking Standards and, in doing so, provide feedback on how this can be improved, and whether it is more effective for the oversight and enforcement of the professional standards to be undertaken by a genuinely independent professional body.
	With more than 150 government amendments alone and just three sittings to discuss them, it is impossible to give them the amount of scrutiny that we would have wished. Therefore, it is sensible to ensure that mechanisms are in place for an independent review of both the FCA’s and PRA’s implementation of these changes. There are more than 50 actions, such as reform of the register and remuneration, with which the Government tasked the FCA and PRA in their response to the PCBS recommendations that do not require legislative scrutiny. There are also areas being included in the Bill that empower the regulator to develop and implement rules and enforce them. Given that the regulator in its previous incarnation of the FSA failed to hold anyone responsible for scandals such as the mis-selling of payment protection insurance, it is prudent to ensure that the reforms work effectively and that any amendments are made to maximise the protection of consumers. Indeed, the PCBS in its final report, Changing Banking for Goodmade this point in paragraph 195, when we said:
	“Regulators have the power to impose significant penalties on individuals who engage in inappropriate behaviour, unlike banks, who can generally only impose penalties if they are within the terms of their contracts with their employees. The prospect of public censure, significant fines or being banned from the industry
	could provide a meaningful downside to balance the significant upsides in banking. However, there has been negligible use of such sanctions against individuals”.
	It continues in paragraph 196:
	“In relation to the financial crisis, despite the ample evidence of widespread failures of management, leadership and risk control, the FSA has only brought a single case against an individual ... The Commission considers it a matter for profound regret that the regulatory structures at the time of the last crisis and its aftermath have shown themselves incapable of producing fitting sanctions for those most responsible in a manner which might serve as a suitable deterrent for the next crisis … The only other senior executive from a large UK bank to face any enforcement action in recent years was John Pottage, a former UBS wealth management executive, whose fine for misconduct was overturned by tribunal in 2012”.
	There needs to be a promotion of cultural change, which I suggest should be through an independent professional body: While there is currently no independent professional body that could adequately take on these responsibilities of overseeing the banking standard rules or licensing regime, there appear to be some developments with Sir Richard Lambert’s plans for a new independent organisation to monitor standards in the UK banking industry. That looks like a step in the right direction, but we must remember that it is the banks themselves that have established that. The criterion for independence has still to be judged in that area. The parliamentary commission indicated that there is scope for a truly independent professional standards body to,
	“share or take over formal responsibility for enforcement in banking”,
	should it be able to fulfil the milestones laid out in the report. This was something that the commission recognised as important in changing the culture within the industry. It was the Parliamentary Commission on Banking Standards that looked at the culture in the industry. The Vickers commission did not look at culture. Indeed, when the Financial Services Bill Committee was going through the House, being a member of that Committee, I asked Vickers about culture because I noted that it was mentioned only four times in his report. His inadequate answer at that time was, “That wasn’t in our remit”. This is the centrepiece of changing the industry, and it is important that that concept is up front.
	Paragraph 138 of the Commission’s report says:
	“We believe that the influence of a professional body for banking could assist the development of the culture within the industry by introducing non-financial incentives, which nonetheless have financial implications, such as peer pressure and the potential to shame and discipline miscreants. Such a body could, by its very existence, be a major force for cultural change and we have already recommended that its establishment should be pursued as a medium to long term goal alongside other measures such as new regulatory provisions”.
	However, to facilitate this, an independent review of the regulator’s performance must be undertaken to determine whether responsibilities for oversight and enforcement of professional standards should be moved across to a genuinely independent professional body. Now, why do we insist on that? There is a need to restore trust to this industry. Consumer confidence in the banking industry remains low since the crisis. There is a need for these reforms to work and those who game the system to be held to account. A poll
	commissioned in the summer undertaken by Populus found that 86% of people think that the financial regulator needs to enforce the recommendations because banks cannot be trusted to do it themselves.
	One question I asked throughout the Parliamentary Banking Standards Commission to executives coming before the commission was, “Can you effect change on your own in this industry?”. Almost universally they said, “No, we cannot. We need outside help”. While we pass this banking reform Bill, if we walk away from this issue then we walk away from the solution.
	We have to have mechanisms to assist and to have oversight over the industry to ensure that that cultural change is undertaken. It is important that mechanisms are put in place that will hold the regulators to account and ensure that those who mis-sell or act in an unprofessional manner are held to account, regardless of their position or the size of financial institution to which they belong. I beg to move.

Lord Newby: My Lords, I start by saying that we strongly agree with the last point made by the noble Lord; people who fall below the standards of conduct required of them should be held effectively to account. We have been discussing a number of ways in which the Bill will help to bring this about. I also appreciate the concerns of the noble Lord that we should take stock at some point and review whether the new system of rules of conduct has delivered an improvement in behaviour among bank staff—the kind of improvement that we are all agreed we want to see.I am not sure, however, that we need legislation to provide for that.
	In the first place, the regulators themselves will keep their rules under review in the normal way. There will be no difference in that respect between rules of conduct for bank staff and any other rules that they make. They will similarly review their policy statements about taking action for misconduct under Section 66, and keep their policies and practices under review too. I expect also that the Treasury Committee in the other place, and possibly also the Economic Affairs Committee in your Lordships’ House, will want to keep such matters under review. Nothing, of course, stops the Treasury from commissioning reviews of these and other matters, if it thinks it appropriate. All these reviews can range as widely or as narrowly as is appropriate. They can cover the full range of matters in FiSMA or other relevant legislation—and any other matter as well.
	I comment briefly on the point that the noble Lord made about the work of Sir Richard Lambert. We are putting great faith in Sir Richard Lambert to produce worthwhile movement. Having worked with him on other things in the past, I have considerable confidence in him to do that. However, we will have to see how that unfolds. It requires the banking industry to accept the need to take measures that it has not in the past. Sometimes that has been difficult for it. On the amendment, we do not need a mandate for such a specific review in the Bill itself.

Lord McFall of Alcluith: My Lords, given the form of the regulators in the past, the Minister’s words that
	the regulators will keep the review under review in the normal way are not inspiring. However, I beg leave to withdraw the amendment.
	Amendment 70 withdrawn.
	Clause 24: Meaning of “bank”
	Amendment 71
	 Moved by Lord Newby
	71: Clause 24, page 38, line 42, leave out “Bank” and insert “Relevant authorised person”
	Amendment 71 agreed.
	Amendments 72 to 75
	 Moved by Lord Newby
	72: Clause 24, page 38, line 43, leave out “bank” and insert “relevant authorised person”
	73: Clause 24, page 38, line 44, leave out from “Part” to end of line 46 and insert ““relevant authorised person” means a UK institution which—
	(a) meets condition A or B, and
	(b) is not an insurer.
	(2) Condition A is that the institution has permission under Part 4A to carry on the regulated activity of accepting deposits.
	“(2A) Condition B is that—
	(a) the institution is an investment firm,
	(b) it has permission under Part 4A to carry on the regulated activity of dealing in investments as principal, and
	(c) when carried on by it, that activity is a PRA-regulated activity.”
	74: Clause 24, page 39, line 7, leave out “(1)” and insert “(2), (2A)”
	75: Clause 24, page 39, line 7, leave out “section 22, taken with Schedule 2 and” and insert “Schedule 2, taken with”
	Amendments 72 to 75 agreed.
	Clause 25: Recording information about senior managers
	Amendments 76 to 81
	 Moved by Lord Newby
	76: Clause 25, page 39, line 14, leave out “relevant authorised person is a bank” and insert “authorised person concerned is a relevant authorised person”
	77: Clause 25, page 39, line 19, leave out “an authorised person that is a bank” and insert “a relevant authorised person”
	78: Clause 25, page 39, line 28, leave out “an authorised person that is a bank” and insert “a relevant authorised person”
	79: Clause 25, page 39, line 31, leave out “bank” and insert “authorised person”
	80: Clause 25, page 39, line 32, leave out “bank” and insert “relevant authorised person”
	81: Clause 25, page 39, line 35, at end insert—
	“( ) For subsection (9) substitute—
	“(9) “The authorised person concerned”, in relation to an approved person, means the person on whose application approval was given.””
	Amendments 76 to 81 agreed.
	Schedule 3: Consequential amendments relating to Part 4
	Amendment 82
	 Moved by Lord Newby
	82: Schedule 3, page 131, line 18, leave out from “etc.),” to end of line 21 and insert “in subsection (2)(g), in sub-paragraphs (ii) and (iii), for “relevant authorised person” substitute “authorised person concerned”.”
	Amendment 82 agreed.
	Clause 27: Offence relating to decision that results in bank failure
	Amendment 83
	 Moved by Lord Newby
	83*: Clause 27, page 39, line 42, leave out “bank (“B”)” and insert “financial institution (“F”)”

Lord Newby: My Lords, we now move to a group of government amendments which pertain to the scope of the offence relating to a decision that results in bank failure. This offence was introduced through amendments to the Bill in response to a recommendation by the PCBS. As tabled in advance of the debates in Committee, and building on the FiSMA definition of “bank”, the offence would have applied to retail banks and building societies. This meant that all deposit takers except credit unions were covered.
	As discussed in earlier debates on the scope of the senior managers regime, the Committee debate on 15 October has prompted the Government to reconsider this position. In the light of the persuasive arguments put forward in that debate, we are amending these clauses so that the offence may be committed not only by senior managers of a bank, but by senior managers of relevant authorised persons. “Relevant authorised person” is defined by government Amendment 106 to include banks and those investment firms that are regulated by the PRA as well as the FCA. These are known as systemic investment firms, because their large size means they have a significant impact on the wider financial sector. Smaller investment firms will continue not to be covered by the offence. This is because, like credit unions, they do not represent a significant risk to taxpayer funds, or to financial stability, and their failure is very unlikely to lead to serious harm to customers.
	The Government shared this definition with the members of the former PCBS and are hopeful that the scope now captures those firms that the PCBS had in mind. I hope that these amendments fully meet the House’s concerns on the matter.
	The other amendments in this group make consequential amendments to Clauses 27 to 28 which are necessary to give effect to this change, and improve the drafting of the existing provisions. There was also some debate in Committee over whether the cross-heading as tabled properly represented the offence. In the light of this, I have asked the House printers to amend the heading so it now reads, “Offence relating to a decision causing a financial institution to fail”. I trust that this addresses the concerns raised. I beg to move.

Lord Lawson of Blaby: I make one point of clarification on what my noble friend said. I apologise for my cold. It is absolutely necessary that the definition of “bank” should be extended in the way that the noble Lord has said. I am very pleased with that. He gave us a reason that these investment banks, or these investment institutions, might be a potential liability for the taxpayer. I hope he will withdraw that. It is very important that there is no taxpayer liability there. The reason we wanted it expanded is that we were concerned about banking standards, which was what this commission was all about: banking standards and culture. That is why it is necessary that there should be this regime for these banks, not because there might be a taxpayer risk or bailout.

Lord Newby: I can give the noble Lord that assurance.
	Amendment 83 agreed.
	Consideration on Report adjourned.

NHS: Accident and Emergency Units
	 — 
	Question for Short Debate

Baroness McDonagh: To ask Her Majesty’s Government what plans they have for the future of NHS accident and emergency units.

Baroness McDonagh: It might help the House if I explain why I have asked for this debate. I live near St Helier and St George’s Hospitals. The A&E at St Helier Hospital, which had 80,000 visits last year, may be closed. It is a regular district hospital. St George’s is not a regular hospital, but a regional and national trauma centre, specialising in strokes and coronary care, with very high unit costs. If St Helier were to shut, we all know locally that the people of that area would go to the A&E in St George’s—costing more, blocking beds and destabilising the hospital. That is because hospitals make money on their elective procedures and tend to lose money on emergency care. If you change that ratio, you soon put the hospital into the red. The London Borough of Merton commissioned some independent research and found the same thing. The researchers said, “We questioned CCG board members quite closely regarding their understanding of the baseline financial activity and quality position in Merton. We did not find a good understanding of the current resource position, nor how these resources
	were being used, and how such use would be compared to other parts of London and England as a whole”. I do not blame them for that, as they probably cannot get hold of the information in the rest of London or England. They go on to say, “Without a thorough assessment of these issues, there is a high risk of taking the wrong or even counterproductive action. For example, if financial problems are caused by high unit costs at St George’s, it makes no sense to close St Helier”.
	I took my local knowledge, together with my understanding of what is happening to the NHS nationally, particularly around A&E, and put two Questions down. One Question asked how many A&E departments had been closed by the Government since they came into office in 2010. The answer came back, “We don’t know”. I asked how many A&E closures were currently under consultation. The answer came back, “We don’t know”.
	Perhaps I could explain tonight to the noble Earl, Lord Howe, and to the Government, why it is important that they know how many A&Es they have, where those units are and how many are closing. The clue is in the title: National Health Service. The Government are responsible for the oversight, costs, management and planning of the health service. To do that, you need to know where your A&Es are. When A&Es close, maternity units normally follow. The Government are responsible for seeing that there are enough beds for mums to have their babies. They also tell us, because they have the figures, that the population is due to increase to 70 million—so shutting maternity units is probably not a good idea. You also need to know where the A&Es are because, when you shut an A&E, other clinical services close with them. If you shut St Helier A&E, you will also shut the regional renal unit. According to the evidence, you also reduce ITU beds and medical beds; hospitals cannot then meet their elective targets.
	The Government also need to know, because—I do not know if this is shocking—they are responsible for disaster and emergency recovery planning, and generally it is a good idea to know where the A&Es are. They are also responsible for sending out the latest advice and, again, you cannot do that if you do not know where the A&Es are. Lastly, the closures of the four A&Es that have already happened have led to unintended consequences, and you need that information for forward public policy-making. We are getting worse results, it is costing more and the care is worse. All in all, it is a lose-lose situation. Closures are not working, largely because they have been built on six terrible government reforms, which are resulting in systemic failure in the NHS. No money announced today or two-tier A&Es will make a difference to that.
	The first of the reforms that have led to the problems that we now face is the Government collapsing all targets. Then there is the terrible reform of giving GPs the NHS budget, which took from front-line services, and cost the Government, £3 billion. The Government have also overseen the closure of one-quarter of all walk-in centres, and Monitor says the future for the rest is dicey. They have also overseen cuts in the adult social care bill of £1.8 billion and cuts to aids and
	adaptations, so that we are seeing record numbers of elderly people go into hospitals through A&Es, who cannot then get out because the aids and adaptations have not been made. The fifth and sixth reforms were shutting NHS Direct and introducing the terrible 111 service. Doctors and nurses are leaving in their droves, and the Government have spent an extra £120 million on emergency medical locums compared to before. All these reforms have led to a threefold increase in attendance at A&Es, and now more than one in four people who go to A&Es are being admitted. If the ministerial health team were doctors, they would be struck off.
	When I look into this, I cannot decide whether it is incompetence or ideology that is driving these changes. I fear that it is a dangerous cocktail of both. For me, it is perfectly legitimate in a democracy to be against a national health service, but you need to be honest about that, and it is important to have a debate. I will start that debate by answering my own questions. Four A&Es have been closed since 2010 and a further 15 face closure, which means one-third of all A&Es in the M25 area will close. Last week, NHS England announced that a further 60 A&Es out of 197 will close. Tomorrow, the A&E is closing at Trafford General Hospital, where Aneurin Bevan announced the birth of the NHS.
	What am I asking the Minister for Health? I am asking him to call a moratorium on all A&E closures, to listen to the public, to commission independent research on what is happening and, above all, to find out where these A&Es are and to visit them.

Lord Patel: My Lords, in my three minutes, I will make some brief comments that will lead up to some questions for the Minister. In my view, the pressures on A&E departments are but one component of wider pressures in the NHS. There is a disconnect between A&E and other departments in hospitals, such as diagnostic and in-patient services, which, in contrast to A&E, are both geared to a five-day, nine-to-five working schedule. Added to that of course is the fragmented nature of patient services in the community, which leads to bedblocking and further pressures on A&E. We will have to address the problems of A&E, and the Keogh report goes some way to doing that, but the problems in A&E will not be solved by focusing on just one aspect of the service. The whole system needs to be co-ordinated and to work seamlessly.
	Figures show that the main pressures on A&E come from people with long-term conditions. This in turn leads to pressures on in-patient services. This is due in part to poor access to primary and community care. What is needed, as has been discussed on many occasions, is better management of patients with long-term conditions so that they do not end up needing emergency care.
	There are other issues. The issue of workforce problems in A&E further compounds the problem. I understand that there is a serious problem with recruitment of trainees, particularly specialist trainees, in A&E. There are also, of course, the vagaries of the tariff, which is set more in favour of elective work than emergency
	work. I note that the Keogh report tries to address that, or at least intends to explore it. I know that recently the Government have allowed more funds to help with A&E pressures but I am not sure what these funds are to be used for. I hope that the Minister will comment on that. It would be helpful if he could comment on whether the Government have a long-term strategy to cope with the increasing number of patients with long-term conditions, and on what plans the Government have for Health Education England to address the issue of workforce planning, which would help with A&E.

Lord Selsdon: My Lords, I thank the noble Baroness for introducing this debate. I declare an interest as a director of the construction company that built St George’s. We had quite a lot of trouble with it.
	I will use as my text the wonderful brief produced by the Library. I declare an interest as having been on the Information Committee. I want to draw attention to the need to separate the main A&E centres from the patient. I take the point of the noble Lord, Lord Patel, that we should look to people who have a long-term condition, and generally are aware that they have a long-term condition. We should also look at the intermediate situation of what can be done at the place of an incident.
	I have used 111 three times. When I first used it, I was quite surprised that I was dealing with foreign doctors who had relatively little knowledge but terribly pleased with the enthusiasm of these people who had only been in the business for a short period of time. There was a tendency to refer someone to A&E immediately rather than to look at what care might be given closer to the place of the incident or to a person’s home. In my day we looked to the district nurse, who seems to have disappeared from real life, or the retired doctor whom we knew down the road or the pharmacist. Our pharmacists in the United Kingdom are among the best in the world. They are extremely well trained and a very good point of contact.
	When calling 111, you usually receive an answer to a telephone call quite quickly, and you receive a bit of guidance and advice, but the irrevocable next step is to be taken to A&E. One or perhaps two ambulances may then arrive.
	I have often worked abroad and have been privileged to benefit from A&Es in other places. I once suffered from an extremely bad upset stomach in Cairo, which ended in rebuilding the sewers, where the A&E man arrived on a moped with only one working cylinder and a flat tyre and cured me within a couple of hours. He was the doctor to the Egyptian swimming team. Egyptian doctors are really quite good and he explained to me that every one of them was trained to deal with situations on the spot.
	When I was in Italy, not so long ago, there was no doctor available when someone was ill so a hotel rang the transport department. The transport department has doctors on motorbikes on call for car accidents. They turned up and sorted everything out. This seems to happen in many places. I live in France part of the time, and there we do not call the health service when there is a problem, we call the fire brigade. They like
	exercises and they send a small fire engine—if the patient is a woman, there will be a woman with them—and they get patients to hospitals more quickly than ambulances.
	There must be further thought on this. I ask your Lordships to read the Library’s report, as that is what I would have said if I were competent to do so.

Lord McKenzie of Luton: My Lords, I am grateful to my noble friend Lady McDonagh for initiating this, albeit brief, debate. I plan to use my three minutes to focus on one point. Before I do so, I will say that it is hard to look aside from the mounting problems of A&E departments, spoken to powerfully by my noble friend and evidenced by the number of patients waiting longer than four hours, the numbers waiting on trolleys, the increase of bed days lost because of delayed discharges and staffing problems. A&E departments undoubtedly are struggling to cope. All of this is exacerbated, as identified by the Health Select Committee, by the inadequacy of information about the nature of the demand placed on the service.
	There has been hardly any focus in the wider debate on accident prevention in the first place. Prevention would be investing to save: to save on pain and suffering, even death; to prevent days lost at school or work; and to save costs to the NHS, A&E and the welfare system. The current chaos compels us to be radical. At least one-third of the nation’s A&E attendances are the result of accidental injuries. There are millions of injuries every year that are 100% preventable, according to the Office for National Statistics. These injuries are rising as a significant proportion of the overall pressure on A&E because we have stopped investing in the tried and tested antidote. We should not be negligent about the safety of our citizens, our duty to our health professionals and the very future of our National Health Service.
	The country’s longest-standing safety charity, the Royal Society for the Prevention of Accidents, of which I am delighted to say that I am now president and in respect of which I declare my interest, has already shown what can be done. In Liverpool, for example, it ran a home safety scheme, working with disadvantaged families with children under five. Equipment such as stair gates, fireguards and blind-cord shorteners were fitted in the homes of those most at risk. Parents were given practical advice to help them keep their children safe. This is not rocket science. The result was that A&E admissions for zero to five year-olds plummeted by about 50% over two years—against the trend, as home accidents have been rising steadily over recent decades.
	There is no doubt that increased funding for accident prevention initiatives and a task force to co-ordinate national action could lead to a major reduction in the number of deaths and injuries and the call on A&E departments. The answer is not just more resources or different approaches to treatment, but an alternative that is staring us full in the face. Accidents are the main cause of preventable early death for most of our lives, costing the state £20 billion to £30 billion each year. Given all this, is it not time that we rediscovered that prevention is always better than cure?

Baroness Manzoor: My Lords, the first choice of most people who think that they need urgent medical attention is to go to their local hospital’s accident and emergency department. I understand that, as A&E departments are trusted by the public as a place of expertise and knowledge. However, as we know, our hospitals and A&E departments are under significant pressure to treat all those who come through their doors. On top of this, the Royal College of Surgeons states that A&E departments are understaffed by around 10% and that in some trusts, such as Barking, Havering and Redbridge University Hospitals NHS Trust, the figure is as much as 43%. The understaffing of A&E departments is a serious issue.
	Following the disgraceful events at Mid-Staffordshire hospitals, the Government have given their total commitment to putting patient care first and ensuring that patient safety should always be paramount. However, it is clear that running A&E departments that are under-resourced and poorly staffed poses a high risk to patient care and patient safety. This issue needs urgent attention by the Government and the NHS health board and I look forward to the Minister’s response on the plans that the Government have to rectify this and the timescales involved.
	I too have read Sir Bruce Keogh’s review of urgent and emergency care services in England and I agree with the report’s proposals that there must be a “fundamental shift” in the provision of urgent care. I agree with much of the report, which is reasonable. But what we need now is strong leadership to deliver.
	I have also read the July 2013 survey findings from the NHS Confederation, which found that its members thought three main solutions could lead to fewer pressures on A&E departments. The first was more money for primary and community care. To this, I would add more extended primary care out-of-hours services provided by GPs. These could be sited in hospitals or perhaps close to A&E departments. This would enable GPs to work in much greater collaboration with hospital A&E staff and could provide the patient with much needed seamless care.
	Secondly, winter pressure money for hospitals should be allocated sooner. I would further argue that this money should be part of hospitals’ general allocation so that they can plan service delivery for all their services in a more effective, planned and co-ordinated way. Thirdly, there should be a public-facing campaign about all the alternatives to emergency departments, but these alternatives must provide a good quality of care and service if they are to have the trust of the public.
	The Government are moving in the right direction by allocating specific funds, but it is not just about turning the tanker, it is about making our hospitals and GP services fit for the 21st century.

Baroness Masham of Ilton: My Lords, there is confusion at the moment about where people go when they need treatment at weekends and at night. There is considerable difference between urban and rural health. I thank the noble Baroness, Lady McDonagh, for initiating this very topical debate.
	Rural health has changed so much from the days of the family doctor, when he or she knew their patients. Now the doctor is dependent on the computer. My surgery in rural North Yorkshire opens at 9 am, is closed each day from 12.30 pm to 2 pm, has a historical half-day on a Thursday, shuts each day at 6 pm and is shut over the weekend. The out-of-hours service at Ripon is 10 miles away and does not have anyone to operate the X-ray so it has to be the hospitals, which are 26 and 16 miles away. There are no alternatives to the A&E departments. This is not good for elderly, frail people who need attention.
	In rural areas there are serious farming injuries and all the usual conditions, but also such conditions as leptospirosis—Weil’s disease—which can be a killer. I agree that serious conditions should go to the correct hospital, however far away, and I must say that the air ambulance is invaluable and supported by the rural communities. Will having two types of emergency department—one an emergency centre and the other a major emergency centre—not cause more confusion? To which centre should a parent take a child with suspected meningitis B, which can kill within 24 hours?
	More integrated care in the community is essential. With all the long-term rare conditions and conditions such as diabetes and liver disease, a specialist nurse is vital and can be a lifeline. One of the problems in the community is not being able to have a drip for antibiotics, and not being able to get antibiotics without a doctor means that ill people have to go to hospital. I am sure that if everyone learnt first aid and it was taught in schools, colleges, prisons and the community, lives would be saved.
	Up-to-date information about what is available and where to go for treatment in rural areas would be helpful and would reduce confusion. I end by asking the Minister: with the shortage of emergency doctors working in A&E departments, what is being done to recruit and retain them? They need support so they do not get overburdened and disillusioned. They are essential.

Lord Dubs: My Lords, I congratulate my noble friend Lady McDonagh on having initiated a debate that enables us to draw attention to the serious crisis in A&E, which is evidenced by people waiting long hours on trolleys or in ambulances, the consequence of social care cuts, the fact that walk-in centres are being reduced and that NHS Direct has been closed down, all of which aggravate the problem.
	I will focus my remarks on north-west London, which has been hit harder than most parts of the country. It is going to lose four of its nine A&E services and two of its major hospitals; for example, at Charing Cross Hospital 500 acute beds are going to disappear and will be replaced by up to 50 rehab beds. It means that the service at Charing Cross will be manned by GPs. There will not be a proper A&E service. There will not be a blue-light service at Charing Cross Hospital and people will have to travel much further. We are losing an excellent hospital for the sake of these cuts.
	Above all, it means that the intensive care unit at Charing Cross will be closed; the stroke clinic, which I understand is probably the best in the UK, will go;
	and there will be no emergency surgery. It means that all the current beds and most of the site will go, mostly likely to be sold for development, and we shall lose an excellent hospital. It means that Charing Cross will become a second-tier site and there will be a knock-on effect at Hammersmith Hospital, which is also going to be hit very hard.
	Services in north-west London will be decimated and patients will have to travel much further to go to A&E. In the heavy traffic in London, that is not a small thing. It is not a matter of an extra two or three minutes; it could be an extra long period before an emergency can be dealt with. What we will have locally is some very limited services indeed and we shall lose some of the skills and expertise that we have had.
	At Charing Cross there will be GP cover; they will be able to treat simple fractures and will have some beds on site that can admit patients, mainly the frail elderly, for short periods of rehab or assessment. But there will be no emergency service at Charing Cross and nearby Hammersmith will have only an urgent care centre, which will not guarantee to walk-in patients that they will be seen by a GP, and there will certainly be no blue-light service.
	We are losing a lot of our services in north-west London and I fear that the standards of the National Health Service will deteriorate. It is not necessary to do this and I very much regret that it is happening.

Lord Kakkar: My Lords, I join noble Lords in thanking the noble Baroness, Lady McDonagh, for having secured this important date. I declare my interest as professor of surgery at University College London and chairman-elect of UCLPartners Academic Health Science Partnership.
	No consideration of the future plans for accident and emergency departments can take place without recognising the important factors that are driving demand in A&E. The most important of these is the growing number of frail elderly patients with multiple comorbidities, as my noble friend Lord Patel has already mentioned. The population aged over 85 has grown at more than three and a half times the rate of the rest of the population in the past 10 years. It is striking that 9% of those aged over 75 have experienced an emergency admission through accident and emergency in the past year. This demonstrates that there is considerable demand and that this considerable demand will grow.
	We know that the way that we plan and deliver services for those who are frail, elderly and have multiple comorbidities is not providing the kind of service, the degree of confidence and the relief of anxiety that these patients require. We also recognise that those who are cared for in nursing homes and care homes, who find themselves in an acute situation, will be attended to by excellent paramedics and the ambulance service, but the default position will always be to take these individuals to hospital and very frequently for these individuals to be admitted and then to spend long periods of time in hospital. This is wrong.
	With regard to the plans of NHS England, can the Minister tell us what advice is now being provided to local commissioning groups in terms of the commissioning
	of more holistic and integrated services that recognise the needs of the frail elderly in the community and can better understand how those needs are met, and how the services are delivered in an integrated fashion with local hospitals, while avoiding admission through accident and emergency?
	What discussion has taken place about addressing the important problems of workforce development, to help us ensure that we have a medical and paramedical workforce developed for the needs of these large numbers of frail elderly patients with multiple comorbidities? What position has Health Education England taken, and how is this central advice being delivered to local education and training boards to ensure that an appropriate workforce is delivered, able to deliver multidisciplinary care to reduce the demand on accident and emergency services and manage patients rather better in the community?
	Finally, may I ask the Minister how much progress has been made on the development of locally sensitive information technology projects that allow a connection between information held on frail elderly patients with multiple comorbidities in different care environments, be it in social care, in primary clinical care in the community or in hospital care. Such information could be shared effectively to reduce the burden on accident and emergency departments.

Lord Kennedy of Southwark: My Lords, I am most grateful to my noble friend Lady McDonagh for securing this debate on the future of NHS accident and emergency units. At the start I declare an interest: I chair, on an entirely voluntary basis, a small committee at Lewisham hospital. It is impossible in just three minutes to get across the scale of the problems and the anxiety and concern of local communities about the A&E crisis that is unfolding before us as the winter sets in.
	What did the Government do as soon as they came into office? They had a top-down reorganisation of the NHS, after pledging not to do that, which only made matters worse. What is clear is that this is the Government’s problem. It has happened on their watch, with poor implementation of their already flawed policies, and the cuts they have made to the NHS, to social services and other budgets. There has also been the running down of NHS Direct and the ramshackle way in which the NHS 111 service has been introduced.
	I hope the Minister will be able to tell the House how the Department of Health and the NHS are going to respond to the challenges they face, and how they propose to do that with thousands and thousands fewer staff than we had only a few years ago. I fear that things could be even worse than last winter, and we will be back with rising numbers of patients waiting on trolleys at A&E.
	We have already had an A&E summer crisis, with more than 1 million people waiting more than four hours to be seen, all on the Minister’s watch. The problem is all of this Government’s own making, and they are not going to get away with trying to wriggle out of it. The Minister and the rest of his team would have us believe that it is everyone else’s problem—it is
	the doctors’ fault, and the fault of the nurses, the GPs, the porters, the radiographers, the support staff, the patients, or even the weather. It is too cold, or it is too warm, or it is the wrong time of the year. But it is this Government’s problem; it is down to mismanagement by this Conservative and Lib Dem coalition.
	If the Minister is going to tell us the problem is caused by too many people going to A&E when they should go somewhere else, can he tell the House why the Government cut Labour’s extended opening hours for doctors’ surgeries and why they are closing NHS walk-in centres up and down the country? Can he confirm how many walk-in centres have closed since the Government came into office? Why did they close NHS Direct, and why did they introduce NHS 111?
	My noble friend Lady McDonagh has got it right. We have a dangerous mix of incompetence and ideology. They want to get rid of the NHS, but they realise how unpopular that would be, so instead they pare down to the bone, to the minimum that they can get away with.

Baroness Finlay of Llandaff: My Lords, I should declare, in this important debate, that my daughter is an A&E consultant in London. The current crisis is multi-factorial, at the one place in the system that is open 24 hours—open all hours, in fact. As the National Audit Office report, Emergency Admissions to Hospital, says:
	“A&E departments are facing increasing pressure and there is evidence that at times of increased pressure there is a greater tendency to admit patients. Urgent access to primary care is variable and has been linked to higher A&E attendances … the severity of patients in major A&E departments is worsening, with higher proportions of patients arriving via ambulance and a sharp increase in the percentage of patients attending A&E … who are then admitted".
	The College of Emergency Medicine also highlights insufficient workforce capacity, with 383 of 699 specialist registrar posts in emergency medicine unfilled. That equates to a capacity of 1 million patient contacts a year. There is also an exit block from A&E departments through delayed hospital discharges, estimated at 830,000 last year, which reduce bed capacity. This is compounded by inadequate ongoing community social support for those sent home. The £500 million in extra funding over two years has been targeted on those with the worst A&E performance last winter, and an extra £150 million was announced. Can the Minister confirm that this money will go directly to provide A&E services and its distribution will not inadvertently penalise departments that radically changed practices in their struggle to perform?
	The staffing crisis jeopardises care. Consultant numbers need to rise from the current average of seven to a minimum of 10 per A&E to allow consultant cover 365 days a year from 8 am to midnight, with higher numbers of consultants in larger trauma centres. Today’s registrars are tomorrow's consultants, and this has to be a consultant-led service, because rapid diagnosis is absolutely essential for the complex trauma and urgent cases that are in the high-risk categories. These are not simple cases coming through the door; they present completely unselected problems.
	The relentless pressure of work has driven more than 50 A&E consultants to emigrate this year—a tenfold rise. The College of Emergency Medicine survey of more than 1,000 consultants found that overall, 62% report that their current job plans are unsustainable, while 94% of respondents regularly work in excess of their planned activities.
	The Keogh review is a longer-term attempt to solve the crisis. But it is silent on the workforce issues. Can the Minister assure me that these are being urgently considered? What is planned to develop primary care and better co-ordinated community care for a seven-day service? How quickly will the needed IT support be introduced, and how will the system of two-tier A&Es be implemented—over what timescale—to ensure that geographically remote regions are serviced without greatly increasing journey times to hospital and so risking higher patient mortality? This is not a simple problem.

Lord Hunt of Kings Heath: My Lords, I first declare an interest as chair of a foundation trust, president of GS1 and consultant and trainer with Cumberlege Connections.
	I too am grateful to my noble friend for raising such an important issue. The case she put for her local hospital, St Helier, was put with great force. The issues she raises are symptomatic of a whole range of issues around emergency care. They are well known, and they are symptomatic of a near collapse of the system in many parts of the country. My noble friends have already referred to the inexplicable closure of walk-in centres, and I ask the Minister why NHS England has pressurised clinical commissioning groups to close those centres. That has exacerbated poor access in primary care, and people are often left with no choice but to turn to A&E, with hospitals becoming very full as a result.
	As my noble friend Lord Dubs said, the discharge of patients is becoming ever harder because the severe cutbacks in social services have impacted on councils’ ability to provide community support. The result of this cumulative failure is that more and more old people are left without the care and support needed to let them stay at home.
	I want to reinforce a question asked by the noble Lord, Lord Kakkar. What are clinical commissioning groups doing about this? They are, as it were, the treasure of the Government—the people who are supposed to be able to sort the situation out. I see no sign whatever of their getting to grips with the issues. I echo the noble Baroness, Lady Manzoor, in asking; why on earth were they given the money to spend in relation to A&E? Why not give it to the hospitals to spend where it would have an impact on the system?
	At a time when the NHS should be focusing all its energies on getting the system to work properly, as my noble friend Lord Kennedy says, the Government have forced it to spend the past three years implementing a costly and completely unnecessary structural change. Remarkably, during that time, rather than increasing staff we have seen a loss of more than 6,600 nurses.
	There is a pressing need to integrate health and social care, provide whole person care and prevent avoidable admissions to hospital. That would also
	embrace the comments of my noble friend Lord McKenzie about accident prevention. Urgent emergency care has a similar need of change. Of course, the recent review by Sir Bruce Keogh argues for a “fundamental shift” in the provision of urgent care and for introducing two types of hospital emergency department with current working titles of emergency centres and major emergency centres. I am not opposed to reform of emergency care, but it is essential, before there is a stampede of closures of current A&E departments, that decisions are based on robust clinical evidence. Any signs of closure for financial reasons must be resisted. I agree with my noble friends Lord Dubs and Lady McDonagh about the domino effect of A&E closures on the services in those hospitals.
	I finish by reminding the Minister that what happened in the case of Lewisham hospital was quite disgraceful. A good hospital suddenly found itself having its A&E proposed for closure to shore up problems in neighbouring hospitals. It is shameful that the Government forced through an amendment in the Care Bill to make this kind of thing much easier to force through in future. The Government’s disastrous reforms and failure to manage the system are putting the NHS under ever more pressure. It is time that they got a grip.

Earl Howe: My Lords, I join other noble Lords in thanking the noble Baroness, Lady McDonagh, for raising this important issue, in which I know that she has a significant interest. I thank other noble Lords who have contributed to this very interesting debate.
	I would like to respond initially by explaining the Government’s policy with regard to service change in general, before moving on to the provision of care in A&E specifically. I find it difficult to say much about the noble Baroness’s speech beyond observing that there is such a gulf separating us in our respective understanding of the facts and what is actually happening in the NHS that I shall have to write to her—and I shall do so.
	The Government are absolutely clear that the design of front-line health services, including accident and emergency units, is a matter for the local NHS. It is the policy of this Government that services should be tailored to meet the needs of the local population. Reconfiguration is about modernising the delivery of care and facilities to improve patient outcomes, develop services closer to home and, most importantly, to save lives. Therefore, all service changes should be led by clinicians, and be in the best interests of patients, not driven from the top down. That is why we are putting patients, carers and local communities at the heart of the NHS, shifting decision-making as close as possible to individual patients, by devolving power to professionals and providers, and liberating them from top-down control.

Lord Hunt of Kings Heath: My Lords, if that is so, why has NHS England put so much pressure on clinical commissioning groups to close walk-in centres? It is simply not happening that clinicians are deciding.
	The fact is that NHS England is carrying on a micro- management of what is happening; it is simply not playing out in the way that the noble Earl describes.

Earl Howe: I would be grateful if the noble Lord could supply me with the relevant facts to back up his statement about pressure from NHS England to close walk-in centres.

Baroness McDonagh: I have another example. If what the Minister said were true, how did the Secretary of State for Health try to shut Lewisham general when all the clinicians called for it not to be shut?

Earl Howe: I shall say more on Lewisham in a moment. This is a time-limited debate, and I hope that I may be allowed to conclude my speech.
	The principles that I have just enunciated are further enshrined in the four reconfiguration tests first set down to the NHS in 2010, which all local reconfiguration plans should demonstrate. These are support from GP commissioners, strengthened public and patient engagements, clarity on the clinical evidence base, and support for patient choice.
	Our reforms allow strategic decisions to be taken at the appropriate level. We are enabling clinical commissioners to make the changes that will deliver real improvements in health outcomes. That is the purpose of reconfiguration. Furthermore, local commissioners proposing significant service change should engage with NHS England throughout the process to ensure that any changes are well managed strategically and, crucially, that they will meet the four tests that I have just referred to.
	Given the scale of change across the health system, it is important that local NHS organisations are now supported when redesigning their health services. We are working with our national partners, NHS England, the Trust Development Authority and Monitor, on the continuing design of the interfaces, roles and responsibilities of organisations in the new system. For example, stroke care in London, which has been centralised into eight hyper-acute stroke units, now provides 24 hours a day, seven days a week acute stroke care to patients regardless of where they live. Stroke mortality is now 20% lower in London than in the rest of the UK, and survivors, with lower levels of long-term disability, are experiencing a better quality of life. That is why we must allow the local NHS to continually challenge the status quo and look for the best way of serving its patients.
	I turn specifically to accident and emergency departments and points raised by a number of noble Lords. The NHS is seeing more than 1 million additional patients in A&E compared to three years ago and, despite this additional workload, it is generally coping well. I can say to the noble Lord, Lord Kennedy, that we are meeting our four-hour A&E standard and have done since the end of April. The latest figures show that around 96% of patients were admitted, transferred or discharged within four hours of arrival. There are now 500 more A&E doctors in the NHS than there were under the previous Government. Trusts expect to
	hire 4,000 more nurses, due to the Francis effect, as a result of the public inquiry that the party opposite decided not to pursue.
	I have heard many noble Lords describe the current situation as a crisis. I do not share that perception. The NHS is performing well under pressure. Dealing with an extra 1 million patients in A&E does, however, mean that we must look at the underlying causes. Providing urgent and emergency care for people is not just about A&E. It is about how the NHS works as a whole and how it works with other areas such as social care, and how it faces up to the challenge of an ageing population of more people with long-term conditions. Therefore, the Government are taking action to respond to the immediate winter pressures and, looking longer term, we will tackle the unsustainable increasing demand on the system.
	NHS England, Monitor and the Trust Development Authority, working with ADASS, have been working together on the A&E improvement and winter planning since May. Staff across the service have worked extremely hard to prepare this year and are committed to making sure that their plans are robust and that patients will receive the services they should expect and deserve. This process was started earlier and is more comprehensive than in previous years. We are determined to do everything we can for the NHS to continue providing high-quality care to patients throughout the winter, which is why we are backing the system with additional funds in the short term to help local areas prepare for and manage additional pressure during the winter.
	We have allocated £250 million of funding to NHS England to help cope with winter pressures, with another £250 million for 2014-15. There will also be an extra £150 million from within the NHS England existing budget this year to ensure that everywhere receives a fair share of the funding.
	It is, however, clear that the current situation is unsustainable in the long term. That is why we asked Sir Bruce Keogh to lead a review of urgent and emergency care with the first phase published on 13 November, which was also roundly welcomed by the system, including, as noble Lords will be aware, by the NHS Confederation and the Royal College of Surgeons. There will be a further update in spring 2014.
	The review is aimed at delivering system-wide change, not just in A&E but across all health and care services in England by concentrating specialist expertise where appropriate to ensure that patients with the most serious illnesses and injuries get the best possible care and ensuring that other services, such as primary and community care, are more responsive and delivered locally. This will mean that people will understand how to access the most appropriate treatment in the right place as close to home as possible.
	The noble Baroness, Lady McDonagh, the noble Lord, Lord Patel, and others referred to NHS 111. The introduction of the NHS 111 service is part of the wider revisions to the urgent care system to deliver a 24/7 urgent care service that ensures people receive the best care from the best person in the right place at the right time. This is not only government policy; it was a
	policy fully signed up to by the previous Government and initiated by them. Although NHS 111 has had a difficult start, we have backed the service with a £15 million fund to support it over the winter. NHS 111 now deals with more than half a million calls a month, and 97% of them are answered in under a minute. The first phase of the urgent and emergency care review sets out a significant expansion and enhancement of the NHS 111 service so that patients know to use the 111 number first time, every time, for the right advice or treatment.
	NHS Direct, which was referred to by the noble Baroness, Lady McDonagh, and the noble Lord, Lord Patel, will continue to provide 111 services to patients until alternative arrangements can be made by commissioners. The transfer of NHS Direct’s 111 services is progressing well.
	Together with NHS England, we are putting together a strategy focusing on the people who are the heaviest users of the NHS, vulnerable older people and those with multiple long-term conditions. Here I am addressing particularly the points raised by the noble Lords, Lord Patel and Lord Kakkar, and my noble friend Lord Selsdon. The vulnerable older people’s plan will focus on improving out-of-hospital care services centred on the role of general practice in leading proactive, person-centred care within a broader team and is due to be published later this year. A key element of the plan is the provision of joined-up care for vulnerable older people, spanning GPs, social services, and A&E departments themselves, which is overseen by an accountable GP. The aim of proactive care management is to help keep people healthy and independent longer.
	A number of noble Lords referred to the workforce challenge. Health Education England is working with stakeholders on a number of innovations to help alleviate the workforce problems in emergency medicine. Through the Emergency Medicine Workforce Implementation Group, Health Education England will work to develop alternative training routes for emergency medicine and a range of mid-level non-doctor clinician posts. They will work with NHS England on potential workforce and training requirements.
	I would like to address the point made by the noble Lord, Lord Kennedy, about Lewisham. Lewisham’s A&E is not closing. The TSA proposals were a response, as he is well aware, to a very difficult, long-standing challenge facing south London. The new Lewisham and Greenwich NHS Trust must now work with its commissioners and community to deliver a clinically and financially sustainable future. As regards north- west London, which the noble Lord, Lord Dubs, referred to, the Secretary of State has endorsed the recommendations of the Independent Review Panel, and it is now for CCGs in north-west London, working with NHS England, to take this forward. The decisions here were supported by all the commissioners in the area and all the medical directors in the trusts and all but one of the relevant local authorities.
	My noble friend Lady Manzoor spoke about public awareness and engagement. I agreed with a lot of what she said. Through our reforms we have strengthened local partnership arrangements through health and
	well-being boards. These will provide a forum where commissioners of services, local authorities and providers can discuss the future shape of health services. As I have said, local cases for clinical change should be driven from a local level. We know that these reconfigurations work best when a partnership approach underlies them.
	The NHS is one of the greatest institutions in the world. Ensuring that it is sustainable and that it serves the best interests of patients sometimes means taking tough decisions, including on the provision of urgent and emergency care. However—and this is the thought which I leave with your Lordships—those decisions are made only when the local NHS, working with local people and local authorities, is convinced that what it proposes is absolutely in the best interests of its patients.

Lord Kennedy of Southwark: My Lords, before the Minister sits down—

The Countess of Mar: Order! It is a time-limited debate.
	Sitting suspended.

Financial Services (Banking Reform) Bill
	 — 
	Report (1st Day) (Continued)

Amendment 84
	 Moved by Lord Brennan
	84: Clause 27, page 40, line 1, leave out sub-paragraph (i) and insert—
	“(i) takes or agrees to the taking of any decision or the carrying on of any activity by or on behalf of B as to the business of a group bank, or”

Lord Brennan: My Lords, in moving this amendment I am gratified to see so few people in the Chamber. I drafted two amendments in this area of the Bill and found to my astonishment that the Public Bill Office had converted them into 10. The excess is not due to lowly endeavour. Their quantity does not overcome their simplicity, which is designed to improve the drafting of this section; the section creates a major new criminal offence in respect of banking.
	I draw the attention of the House to the following facts. First, because it is a criminal offence in nearly all circumstances it would have had full attention from both Houses. Secondly, however, in this Bill’s history, this offence was not in the original Bill before the other House. It is a criminal offence of a major kind that will have serious attention only from this House, because, thirdly, if it goes back to the Commons in a shuttle process it is hardly likely to receive the appropriate attention that it would otherwise merit. That is an important question.
	As the House agreed when this first came up in debate, one of the main purposes of the draft offence was to phrase it to create a major deterrent just by its
	wording. Of course people who transgress can be punished, but one would devise this kind of offence in order to deter people from thinking of committing it. Therefore, its wording is extremely important—more than in most circumstances. Many criminal offences are the result of spontaneous behaviour. This offence is directed at what you might call systematic misconduct.
	With those points in mind, I turn to the amendments. First, Amendment 84 is not pedantry. In the Bill’s present wording on decisions with which the amendment deals,
	“as to the way in which the business of a group … is … carried on”,
	the use of “way” in this phrase is in legal terms extremely loose. When it is substituted by the word “activity”, as in,
	“carrying on of any activity”,
	it is more precise. The word “activity” is defined as behaviour or actions of a particular kind, whereas “way” is much more nebulous. This amendment is a drafting one designed for precision. If one did not want to accept it, one would want to be persuaded why “way” is more accurate and more easily understood by a jury than,
	“carrying on of any activity”.
	That amendment is straightforward. Amendments 88, 91, 93 and 99 carry on its usage in other parts of the clause. Amendment 105 makes clear the words “decision” and “activity”, although the singular includes the plural. Amendment 84 and consequential amendments stand apart from what I shall add. It is a simple and sensible amendment.
	On Amendment 95, when you are dealing with corporate activity and the decisions or activity of a group of individuals that lead to a major event such as the failure of a bank, all that imports a mixture of events and circumstance. Therefore, with that background, one must be very careful in a legal context about using just the word “cause”. You face the inevitable argument from defendants: “I may have done something wrong, but it wasn’t the real cause”. Most statutes that deal with this kind of issue use words like the ones in this amendment or in the amendment in the name of the noble Lord, Lord Phillips, “cause”, or “contribute significantly to”. That wording prevents defendants inviting juries and judges to enter into philosophical discussions about the extent of causation by virtue of the acts that were committed. That is extremely important; when it comes to a trial we deal with juries, and we want language that will enable them to come to common-sense conclusions. I suggest to the House that this is a commonsense amendment; the amendment in the name of the noble Lord, Lord Phillips, is to the same effect but with slightly different wording. Therefore, that also stands apart.
	The next issue is recklessness. The noble Lord, Lord Deighton, on opening at Second Reading, said that this created an offence of “reckless misconduct”. The terms of the offence do not use the word “reckless” as we identified it on the previous occasion. That is extremely important, because at Clause 80(6) in the same Bill the intended statute creates an offence of recklessness. It actually uses the word “recklessly” to describe a certain action. It can be guaranteed that
	lawyers will argue that if a statute uses the word in one clause but not in another, then where it was not used it was not intended. How could Parliament describe two offences as having the same effect, using the word “reckless” in one but not in the other? That point therefore requires us to consider whether the wording covers recklessness to an adequate extent.
	In the helpful but indeterminate discussion that I had with Treasury and Home Office lawyers, it crossed my mind that the case which they mentioned—a case called Cunningham—is not the current Supreme Court authority on the word “reckless” in this kind of offence. The appropriate authority to look at is R v G in 2004. The wording is simple. The decision says that a person acts recklessly with respect to a result if he is aware of a risk that it will occur—that is straightforward enough—and it is, in the circumstances known to him,
	“unreasonable to take the risk”.
	The intention of that case was to produce a definitive meaning of the word “reckless” for general criminal law. Therefore, let us test that standard set by the Supreme Court against the present wording, to determine whether it meets the current judicial test and whether it should match that test or if there is justification for a different test. This offence differs from R v G in three ways.
	The first is the use of the phrase,
	“far below what could reasonably be expected”,
	rather than, “is unreasonable”. It makes a difference. This means that the jury will be told—in a case where a judge will have to determine whether there is an offence of this kind—whether “far below” only creates criminal liability for the most egregious acts or omissions—disastrously bad mistakes which jump off the page. That is what “far below” imports. This, to many, would strike one as an extraordinarily lenient way of approaching people who ruin a bank—that they should only be liable if they have been guilty of the most stupid and egregious mistake. That difference, having regard to the risk, is not justified. In this amendment, therefore, “far below” is deleted so as to be replaced by the words, “is unreasonable”.
	The second point, by way of a difference to the case of R v G, is that the risk to be guarded against by the people involved is the failure of a bank. Therefore, to favour such conduct with a narrow test—the most egregious conduct—appears to be unwarranted in social justice terms. Why should this test be narrow? If, as I understand it, the offence is intended, despite my suggestion to the contrary that it does not in Committee, to involve wilful blindness—people deliberately avoiding looking at the risk— how is a judge or a jury going to assess somebody who is wilfully blind so as to be totally unreasonable, compared to somebody who is wilfully blind in the most egregious of circumstance? It is a complete paradox of terminology. You are either blind to the risk or you are not. The concept of extensive, as opposed to minimal, wilful blindness is absurd. It is an invidious distinction and will produce serious confusion. The fact that it is used in corporate manslaughter terms is not to the point. As I indicated in Committee, a corporate manslaughter event is usually an explosion, a building collapse, or a crane falling
	over: the circumstances cry out as indicating the “far below” standard compared to ordinary industrial safety standards. It is not the same circumstance; it is not an appropriate analogy.
	The third difference that I suggest to the House is unwarranted is the test. If you look at the offence outlined in Clause 27(1)(c), the test is whether the conduct fell “far below” or was unreasonable, having regard to,
	“what could reasonably be expected of a person in S’s position”.
	In this context, the unreasonableness of conduct should be tested against the standards of people in that position: the unreasonableness, not gross unreasonableness. There is already a test that can be used and the “far below” point simply does not add to that. What could reasonably be expected of a person in his position is enough.
	The House has been patient in listening to this. The fact is that in a few minutes I have summarised what will take days in court hearings about what this all means. What we want to avoid is the occurrence of court hearings. We do not want terminology that will provoke legal argument. The supposed improvements by these amendments that I have advanced at this stage have been debated before. If the Government are not sure of their ground regarding what judges and juries will do, they really ought to take independent opinion from Treasury counsel, not internal lawyers who have no real experience of criminal litigation. I commend these amendments to the House.

Lord Faulkner of Worcester: I must advise the House that if Amendment 84 is agreed to, I shall be unable to call Amendments 85 to 87 for reasons of pre-emption.

Lord Phillips of Sudbury: My Lords, my name is on the 18 amendments in this group and I am the sole signatory on eight of them. I endorse entirely what the noble Lord, Lord Brennan, said. He speaks from great experience, which is of great help to the House.
	One of the scandals—I think one can fairly use that word—of the past five years in terms of financial failings has been the extreme paucity of prosecutions for some of the greatest criminal failings, to use a neutral word, in the history of our or any country. It is rather staggering to think that over the past five years you can count on the fingers of your two hands the number of City malefactors who have been prosecuted, when during that time probably 20,000 or 30,000 people have been prosecuted for shoplifting at an average of £25 a time.
	I tabled these amendments not in any spirit of vindictiveness—one can also say that, I am sure, of the noble Lord, Lord Brennan, and the other signatories—but to try to give real teeth to a very important clause, Clause 27, which is designed and put forward on the basis that it will be a significant deterrent to conduct arising in the future which is comparable to the conduct that has occurred in the past five or six years. The wording of Clause 27(1) in particular seems to those of us who have tabled these amendments to be so
	narrow—to cite the word used by the noble Lord, Lord Brennan—that the prospects of getting a conviction before a jury, or, indeed, starting to prosecute at all, will be remote. To give a simple, direct example of that point, Clause 27(1)(b) makes plain that a conviction can be secured only if the implementation of a single decision—“the decision”—causes,
	“the failure of the group bank”.
	When, except in the rarest of circumstances, did a single decision cause the failure of a bank? Life is much more complicated. Very often a series of decisions is involved and even then you cannot say that the decision or decisions cause the failure but rather that they,
	“contribute directly and significantly to”,
	the failure of a group bank, as I have put it in my amendment.
	We have tabled these amendments to give practical effect to Clause 27 and other clauses. They are important clauses and we must not shackle them with such a narrow set of requirements that they will not serve their purpose. We should never forget that British criminal law is rightly strictly construed, and construed against the prosecution. If you think of that and you think of the wording in the clause, you will realise that it is not fit for purpose. I hope that if my noble friend the Minister does not accept the wording of these amendments—they could be drafted differently—he will at least undertake to come back at Third Reading with wording that the Government find acceptable which will serve the purpose that we seek to serve in putting these amendments forward.

Lord Eatwell: My Lords, having listened to my noble friend Lord Brennan and the noble Lord, Lord Phillips, I found this discussion quite disturbing. The creation of a criminal offence is one aspect of the Bill that pushes forward the regulatory regime in the UK and creates an environment more suited to the somewhat cavalier nature of finance in a global marketplace—in particular by identifying those activities that have inflicted enormous harm upon our fellow citizens. What I heard was that, as drafted, the probability of securing a conviction or even a prosecution, as the noble Lord, Lord Phillips, put it, is vanishingly small. Unless the terminology is clarified in a way laid out so clearly by my noble friend, this part of the Bill will simply bring that aspect of regulation into disrepute because it will be worthless. That is why I regard the remarks that I have heard from the two distinguished lawyers who have just spoken to be very disturbing. It is incumbent upon the Government not simply to produce a pat answer here this evening but again to produce a carefully written assessment of the case for an appropriate criminal regime and its implementation in order that the whole House has an opportunity to assess this important aspect prior to Third Reading.

Lord Newby: My Lords, these amendments essentially aim to make three changes to the criminal offence: first, to allow defendants to be prosecuted under the offence when a number of decisions taken together cause the bank to fail; secondly, to enable the offence to be made out when the decision or decisions in question were a significant contributory factor to
	the failure of the bank, rather than its sole cause; and, thirdly, to include within the definition of bank failure the systematic failure of the bank to prevent liability with regards to broader criminal offences.
	On the first two issues, while I understand noble Lords’ concerns, I assure them that these amendments are not necessary to deliver the effects they intend. First, I assure noble Lords that, as a matter of law, under Section 6 of the Interpretation Act 1978 words in the singular include the plural unless express provision is made otherwise. The term “decision” includes “decisions”, plural. Therefore, where appropriate, it will be possible to prosecute on the basis of the implementation of a number of decisions. The Interpretation Act 1978 ensures that it is not necessary to repeat the defined terms or make express provision for the singular to include the plural in every single statute. The case for abandoning that practice seems rather minimal in this instance.
	Moreover, in practice we generally expect a prosecution of the offence to focus on one individual decision in order to maximise the ability of the prosecution to make its case effectively when asking the jury to consider what are likely to be very complex events. This would enable the prosecution to focus on the causal relationship between the implementation of one decision and the failure of the bank, where that relationship seems to be most clear. In these cases, any other relevant decisions would be taken into account by the jury as the circumstances in which the key decision was taken, when the jury was deciding whether the defendant’s behaviour fell far below that which reasonably could be expected of him or her. For example, a decision to take on a risky acquisition may be more or less reasonable depending on earlier decisions to strengthen or weaken the bank’s capital position.
	These amendments also include references to agreeing to the carrying on of activities by a firm. This would add nothing to the offence as currently drafted, since the reference to agreeing to the firm carrying on certain activities assumes that those activities in some way require authorisation and this must involve taking a decision, or agreeing to the taking of a decision, by or on behalf of the firm, and is therefore already included in the offence.
	Moving on to Amendments 94, 95, 100 and 102, under general principles of criminal law the test for an action having “caused” an event to occur is that, had that action not been taken, the event would not have occurred. Therefore, in this specific offence the test is that, if the decision or decisions in question had not been implemented, the bank would not have failed. The implementation of the decision need not be the sole or even the main cause of the bank’s failure. In practice, because of the evidential standard that applies to criminal cases, we expect that cases will be prosecuted only where it is very clear that the implementation of the decision or decisions in question was a significant contributing factor to the failure of the bank.
	In addition to these general points, the Government oppose some aspects of the amendments in principle. As well as including reference to “activity”, Amendment 97 would lower the bar of the reasonableness test for when the offence would be committed. As set out in Committee, the Government do not think this is
	appropriate. Referring to conduct which is far below that which would be expected has precedents in the Law Commission proposal for a statutory offence of killing by gross carelessness and in legislation creating the offence of corporate manslaughter. We have used this particular phrase knowing that it works and can be effectively interpreted by the courts. There is no precedent in UK criminal law for criminalising behaviour that is merely unreasonable. To do so would amount to an indiscriminate diffusion of criminal liability, in a way that made it hard for individuals to know with sufficient certainty when they might be committing an offence.
	Amendment 118 would expand the definition of institutional failure that would trigger the offence to include occasions where there was a systematic failure of the bank to comply with a range of laws imposing criminal liability in connection with the conduct of financial services business. A similar amendment was raised in Committee, focused specifically on compliance with the Fraud Act 2006, the Proceeds of Crime Act 2002 or the Money Laundering Regulations 2007. The Government’s position on this remains unchanged—this offence has been introduced to plug a gap in existing legislation where there are no criminal powers available to sanction senior managers who have recklessly caused their banks to fail. By definition, criminal liability can arise where offences already exist that individuals can be convicted for and appropriately punished, depending on the seriousness of the breach. In certain cases, they can also be charged with consenting to or conniving in such activities. It is difficult to see how this amendment strengthens the offence.
	The noble Lord, Lord Brennan, raised the question of the definition of “way”. The expression includes both the activities in the business and how those activities are carried out. This makes the offence broader. The noble Lord also suggested, if I understood him right, that in some cases the real risk is that people did not know what risk they were taking or wilfully turned a blind eye. While it might appear attractive to include incompetence by senior managers in the offence, doing so could introduce unwelcome and potentially damaging uncertainty into the sector. Further, to comply with the European Convention on Human Rights, the offence must be sufficiently certain to enable individuals to know when they are at risk of committing the offence. However, this does not mean that it is possible for a senior manager to simply close their eyes to the risk the bank is taking. In some cases a court may decide that it can be inferred that a particular person had knowledge of a risk. In the case of a director, ignorance of a risk to the bank’s existence may, in some cases, be to admit to breaches of the duties under the Companies Act 2006. Accordingly, there are cases in which an argument that a defendant had no knowledge of a particular risk would carry very little credibility and could even expose the defendant to criticism for breach of duty.
	We take this offence extremely seriously as a key part of the new infrastructure that we are putting in place and we believe that it meets the test we have set out. On that basis, I hope that the noble Lord will withdraw his amendment.

Lord Phillips of Sudbury: My Lords, first, is my noble friend quite certain that the Interpretation Act 1978 does not itself operate subject to the context of the language which is being interpreted? If that is so, I believe that there will be real ambiguity about this clause because, as I say, the law is construed strictly in favour of the accused. Secondly, does he accept that in a clause like this, to rely on the Interpretation Act rather than put in some plain words that make it clear, is unhelpful to people who must refer to this piece of legislation in the future?

Lord Newby: I am not sure that I do, my Lords, but I wonder if I might write to the noble Lord to clarify our thinking and, it is hoped, persuade him that we have got it right.

Lord Brennan: My Lords, listening to the exposition of the Minister leads an experienced lawyer to think that those were the kinds of arguments that would make for an entertaining tutorial at university and deprive the participants of any career at the criminal Bar, because they simply would not know what they were talking about in terms of what a judge and jury would expect by way of argument. I am sorry to put it so bluntly, but it really is a clash with the Interpretation Act that would lead to ribald laughter in most criminal chambers. I am being serious about this. It is the kind of argument that you would expect to get from a bright lawyer with no criminal law experience. The Government must face up to this. I do not understand why they cannot take advice from a competent independent Treasury counsel on the scope of the offence in order to make sure that they can prosecute, or at least hope to prosecute. Creating such an offence in-house is, I think, highly suspect.
	I will go through this point by point. First, why should not the statute say decision and/or decisions—one of the two? Secondly, why, as the noble Lord has suggested, do we have to get ourselves into the circumstance of having to identify the key decision? It may be extremely difficult to do that because it may be a refined banking judgment where a series of acts or decisions which led to failure may be cumulative and not the result of the key decision. Thirdly, how the word “cause” in the criminal law can be construed to be “significantly contributed to” is not, I think, something that figures in the criminal law books.
	I turn next to corporate manslaughter. The argument has to be met. The fact that you get the same words in another statute is of no importance until you consider the context in which the words are being used. Far below that, in the industrial safety context, is the matter of common sense. In terms of banking behaviour, it is an extremely complex exercise to expect a jury to carry out, and an unnecessary one. The answer given in response to the amendments did not include any explanation of why this statute is taking itself down a different route from R v G. Wilful blindness is a specific criminal law phrase designed to embrace the people who deliberately close their eyes to something. It does not embrace innocent incompetence. The very word wilful imports the culpability of it.
	My last point, in agreement with my noble friend Lord Eatwell, who is known as an academic, is that the legislature would be shooting itself in the foot if it created a criminal offence which the public came to treat as having no effect, bordering on the ridiculous. That would be a major political mistake. Those on the government Bench who take such matters into account should pay more attention to that than to the legal advice they are getting. I beg leave to withdraw the amendment.
	Amendment 84 withdrawn.
	Amendment 85 not moved.
	Amendments 86 and 87
	 Moved by Lord Deighton
	86: Clause 27, page 40, line 1, leave out “B” and insert “F”
	87: Clause 27, page 40, line 2, leave out “bank” and insert “institution”
	Amendments 86 and 87 agreed.
	Amendments 88 to 95 not moved.
	Amendment 96
	 Moved by Lord Deighton
	96: Clause 27, page 40, line 7, leave out “bank” and insert “institution”
	Amendment 96 agreed.
	Amendments 97 to 102 not moved.
	Amendments 103 and 104
	 Moved by Lord Deighton
	103: Clause 27, page 40, line 11, leave out “bank” and insert “institution”
	104: Clause 27, page 40, line 12, leave out from beginning to “group” in line 13 and insert “A “group institution”, in relation to a financial institution (“F”), means F or any other financial institution that is a member of F’s”
	Amendments 103 and 104 agreed.
	Amendment 105 not moved.
	Clause 28: Section 27: interpretation
	Amendments 106 to 117
	 Moved by Lord Deighton
	106: Clause 28, page 40, line 32, leave out subsections (2) and (3) and insert—
	“(2) “Financial institution” means a UK institution which—
	(a) meets condition A or B, and
	(b) is not an insurer or a credit union.
	(2A) Condition A is that it has permission under Part 4A of FSMA 2000 to carry on the regulated activity of accepting deposits.
	(2B) Condition B is that—
	(a) it is for the purposes of FSMA 2000 an investment firm (see section 424A of that Act),
	(b) it has permission under Part 4A of that Act to carry on the regulated activity of dealing in investments as principal, and
	(c) when carried on by it, that activity is a PRA-regulated activity.”
	107: Clause 28, page 40, line 37, leave out “subsections (2) and (3)” and insert “subsection (2)”
	108: Clause 28, page 41, line 1, leave out subsection (5) and insert—
	“(5) Subsections (2A), (2B) and (4)(b) are to be read in accordance with sections 22 and 22A of FSMA 2000, taken with Schedule 2 to that Act and any order under section 22.”
	109: Clause 28, page 41, line 3, leave out “bank” and insert “financial institution”
	110: Clause 28, page 41, line 4, leave out from “into” to “in” and insert “by the institution, or by a contractor of the institution,”
	111: Clause 28, page 41, line 5, leave out “bank” and insert “institution”
	112: Clause 28, page 41, line 5, leave out from “performs” to end of line 6 and insert “a senior management function.
	(6A) A “senior management function” is a function designated as such—”
	113: Clause 28, page 41, line 10, leave out “bank (“B”)” and insert “financial institution (“F”)”
	114: Clause 28, page 41, line 11, leave out “B” and insert “F”
	115: Clause 28, page 41, line 13, leave out “B” and insert “F”
	116: Clause 28, page 41, line 14, leave out “B” and insert “F”
	117: Clause 28, page 41, line 15, leave out “B” and insert “F”
	Amendments 106 to 117 agreed.
	Amendment 118 not moved.
	Amendments 119 and 120
	 Moved by Lord Deighton
	119: Clause 28, page 41, line 23, leave out “B and B’s” and insert “F and F’s”
	120: Clause 28, page 41, line 24, leave out “B’s” and insert “F’s”
	Amendments 119 and 120 agreed.
	Amendment 121
	 Moved by Lord Sharkey
	121: Before Clause 30, insert the following new Clause—
	“Part 4ARegulation of High Cost Credit
	Regulation of high-cost credit agreements
	(1) The FCA shall, within 6 months of the passing of this Act, include among the regulations governing high-cost, short-term credit agreements provisions to—
	(a) restrict such loans to one outstanding loan per customer at any given time;
	(b) provide for a 24-hour cooling off period between loans in which no new loan may be entered into less than 24 hours after the settlement in full of a previous loan;
	(c) establish at the lender’s cost a real time database of loans outstanding to be used in the enforcement of paragraphs (a) and (b);
	(d) restrict the amount of any loan to a maximum face value of £300, exclusive of permissible fees;
	(e) restrict any transaction fees and charges of any kind to a maximum of 10% of the face value of the loan plus a £3 verification fee;
	(f) restrict the term of any loan to between 7 and 31 days;
	(g) allow the borrower to extend the loan term for an additional 60 days beyond the due date without any additional charges of any kind;
	(h) require borrowers who avail themselves of the extension in paragraph (g) to undergo credit counselling with a designated professional counsellor or organisation and to abide by the plan established to retire the debt.
	(2) For the purposes of this section—
	“high-cost credit agreement” means a regulated credit agreement as defined by section 137C of the Financial Services and Markets Act 2000 (as inserted by the Financial Services Act 2012) that provides for—
	(a) the payment by the borrower of charges of a description from time to time specified by the FCA; or
	(b) the payment by the borrower over the duration of the agreement of charges that, taken with the charges paid under one or more other agreements which are treated by the FCA’s rules as being connected with it, exceed, or are capable of exceeding, an amount specified by the FCA;
	“charges” means charges payable, by way of interest or otherwise, in connection with the provision of credit under the regulated credit agreement, whether or not the agreement itself makes provision for them and whether or not the person to whom they are payable is a party to the regulated credit agreement or an authorised person; “authorised person” has the same meaning as in the Financial Services and Markets Act 2000.”

Lord Sharkey: My Lords, this amendment has been somewhat overtaken by events. As little as four weeks ago, the Government were claiming in this Chamber that there was insufficient evidence for a cap on the cost of payday loans. They said:
	“The Government do not believe that current evidence provides sufficient justification to support a cap on the cost of credit”.—[Official Report, 23/10/13; col. 1109.]
	On Sunday, the Chancellor underwent a kind of Damascene conversion. He is now convinced that there is sufficient evidence for a cap. That is very good news. Surely it would be unkind to point out that there was no more evidence available to him on Sunday night than there was four weeks ago.
	After the Chancellor’s announcement that there would be a mandatory cap, there was another late intervention. At nine o’clock last night, like all of us, I was e-mailed a letter from the noble Lord, Lord Deighton. Without elaboration, it says that,
	“the balance of evidence has tipped in favour of a cap”.
	He says that the Government,
	“will give the FCA a clear duty in legislation to use the powers we have given it to implement a cap”.
	He continues:
	“The FCA must ensure that it designs a cap that works in UK consumers’ interests and fits the UK market”;
	but he goes on to say that the FCA will draw upon,
	“the analysis and findings of the Competition Commission, whose investigation of the payday lending market is currently underway”.
	The investigation is indeed under way, but it has a statutory reporting date of 26 June 2015. That is far too late. It means that any cap is unlikely to be in place before the end of 2016. That would mean millions of the most financially troubled people continuing to
	pay millions of pounds to PDL companies entirely unnecessarily. The Chancellor, in his interview on the “Today” programme on Monday morning, said clearly that installing a cap could happen in parallel with the Competition Commission investigation. I spoke to the noble Lord, Lord Deighton, about this issue earlier today. At the close of our conversation, he committed the Government to have the cap fully implemented by the end of January 2015. This seems to me to be reasonable and to allow the time necessary to put all the systems in place. I would be grateful if the Minister would explicitly confirm to the House the commitment made to me by the noble Lord, Lord Deighton.
	The main difficulty this evening, of course, is the lack of any concrete proposals from the Government. We cannot know exactly what the Government will propose. This is a fundamental problem because the devil is very much in the detail when it comes to the regulation of payday loans. We can only make a little progress tonight, but it would help to hear the Minister confirm to the House that they will by legislation oblige the FCA to impose a cap on the total costs associated with any payday loan.
	It would help to hear the Minister say that the FCA will be instructed to look again at the restrictions on rollovers. The FCA has said that it is minded to restrict rollovers to two. This is completely wrong. Some 28% of all borrowers have one or more rollovers, and a full 50% of payday lending revenue comes from rolled-over loans. Rollovers should be banned. We should do here what they have been doing in Florida for the last 11 years. In Florida, no loan may be taken out until any previous loan has been settled in full; and no new loan may be taken out within 24 hours of the settlement of a previous loan.
	Will the Minister confirm that he will instruct the FCA to consider this system? In Florida there is a real-time lending database in operation. This database prevents rollovers. It also prevents borrowers having multiple simultaneous loans. Will the Minister confirm that we will have a similar real-time database here in the UK? Will he confirm that the FCA will be instructed to consider banning multiple simultaneous loans?
	There are another couple of features of the Florida regulatory system which should be closely examined on the basis that we should use them here unless there is overwhelming evidence to the contrary. First, in Florida, any loan may be extended by 60 days without any additional charge at all. That is certainly not true here, but it should be true here. Secondly, any borrower in Florida who extends a loan by 60 days is required to undergo approved credit counselling and to abide by the plan agreed to retire the debt. This helps stop the spiral of increasing debt and provides a way out. We should have this here in the UK too.
	The fact is that the Florida regulatory system is a model for payday loan regulation. Perhaps this is what the Chancellor suddenly realised on Sunday night. I ask the Government to ask the FCA to consider all aspects of the Florida regime for adoption here in the UK. At its simplest, in Florida, if you borrow £300 for 30 days you pay back £333. Here, if you borrow £300 for 30 days from Wonga, you pay back £397. That is three times as much—a wholly unjustifiable transfer of cash from the poor to the rich.
	In closing, I simply ask the Minister to confirm that when we come to the capping amendment at Third Reading, we can operate under the less restrictive Committee-stage rules, as I think is entirely appropriate given the late stage at which the amendment is being introduced. I beg to move.

Lord Selsdon: My Lords, I support the noble Lord, Lord Sharkey, but I speak from a slightly different point of view. After so many years in your Lordships’ House, from time to time certain problems are raised with me when people have nowhere else to go. I want to talk about the link between the payday loan and credit and other things, particularly unemployment.
	Take the situation at the moment of the young unemployed, or with some sort of weighting allowance in some form or other, who want to buy a mobile telephone or an iPad or something like this. They go along to any one of the suppliers, which then offers them a package that means they do not need to pay £500 up front but can pay it later. They sign up to something that they do not quite understand and then find that they cannot meet the necessary payments. They may have various allowances but, before they know it, the pressure builds up. So what starts as a £500 transaction can multiply into £1,000 fairly quickly. They cannot afford to pay the bill, so they go to a payday loan company—I will not mention their names—which, without the necessary research, offers them facilities at an exorbitant rate of interest. What starts with the wish to buy an iPhone or something of that sort for £500,when they have not got the money up front, can turn into nearly £5,000.
	That is a worry that I had not fully appreciated, and I have tabled a Question next week on the subject. If you have no income and are not employed, you cannot have a payday loan. However, here you have people who get allowances from the state actually getting payday loans. There is something immoral or wrong about that. I do not want to make a fuss about it tonight, but I have quite a lot of evidence and research on it. It worries me because this is a generation of unemployed who have got into a level of debt that they cannot cope with. This issue is becoming increasingly important.

Lord Watson of Invergowrie: My Lords, the noble Lord, Lord Selsdon, makes an interesting and important point about those people who are in the situation where they see this as a last resort for receiving credit. If any noble Lords were watching “Newsnight” yesterday evening, they would have seen a disturbing feature concerning Wonga; the noble Lord, Lord Selsdon, did not want to name companies, but this company was named in the programme. It turned out that people who had had loans from Wonga, and had then gone to try to get a mortgage, had been told by their financial adviser, or by the mortgage company, that they were not going to get a mortgage simply because they had had a loan. I am sure that would apply to any payday loan company.
	It seems perfectly wrong that somebody who takes out that kind of loan and pays it back within the defined period at no additional cost and without
	extending it or anything—in other words, someone who has done nothing wrong or outwith the agreement—is then penalised. It seems that this stain on their record remains for six years. It seems fundamental that any payday loan company ought to be saying on its website, or telling people over the telephone, “Yes, we are happy to give you this money, but we have to tell you that some mortgage companies and some lenders will not lend to you for a period of six years simply because you have taken this loan”. This seems to be a nefarious practice, and it also seems quite wrong that those companies are not obliged to state unequivocally and perfectly clearly that this could be the case.

Lord Eatwell: My Lords, we of course look forward with interest to the amendments that the Government will put down at Third Reading. However, I was somewhat disturbed by newspaper reports suggesting that the Government are going to ask the FCA to formulate a policy on the level of the cap. That would be entirely inappropriate. It is for the Government to formulate and to define the objectives of the policy and for the FCA to then implement it. The FCA may, on the basis of research, be charged with setting the level of the cap in relation to principles defined by the Government, but it is up to the Government to specify those principles, specify the objectives and, indeed, design the policy. We do not want to hear a cop-out, where the Government declare, to general acclaim, that they are going to cap payday loans and then hand the whole design of the policy over to an organisation which is a regulator and not designed, in and of itself, for the formulation of policy.
	I hope that the Minister can give us some reassurance that when these amendments are brought forward at Third Reading, they will contain clear objectives, principles and processes that will define the approach and policy that the Government are prepared to implement with respect to payday loans and that the responsibility that is then handed to the FCA will be one of implementation, not of policy design.

Lord McFall of Alcluith: My Lords, Amendment 178 concerns continuous payment authorities. This is an issue that I raised during the passage of the Financial Services Act 2012. Continuous payment authorities are a recurring payment mechanism involving a debit or credit card where the debtor gives his or her card to the company and they contact the bank. Unlike direct debits or standing orders, this allows a firm to take regular payments from a customer’s bank account without having to seek express authority for each payment. When I made this point to the Minister, the noble Lord Lord Newby said that,
	“abuse of the CPA is one of the most concerning practices of payday lenders”.—[ Official Report , 28/11/12, col. 235.]
	Consumer groups, the Law Society and the OFT have expressed ongoing concerns about this issue. The real issue is that the debtor—the customer—is not in full charge of their affairs. The continuous payment authorities do not offer the same guarantee as direct debits or standing orders. In effect, they give the company authority about how much is taken from an individual’s account and when. This is hugely important to those who take out payday loans, whose financial
	position is tenuous. Unlike direct debits and standing orders, there is no written communication between the individual and the bank. This situation has led to the banks reviewing up to 30,000 complaints from customers since 2009. According to the Financial Conduct Authority, quite a number of those will be eligible for compensation. That authority has said that many of the banks or providers are not cancelling recurring payments to payday loan firms.
	Last December, the OFT warned that businesses should not lock customers into CPA traps because people did not know what they were signing up to. The OFT opened formal investigations last November into several payday lenders over aggressive debt collection practices. Their progress report focused on concerns regarding unfair or improper practices:
	“Using the CPA in a manner which is unreasonable or disproportionate or excessive in failing to have proper regard to the possibility that a debtor is in financial difficulties”.
	This includes,
	“seeking payment before income or other funds may reasonably be expected to reach the account”.
	The Financial Ombudsman Service was seeing 50 new cases a month at the end of last year. My information is that that number has increased since.
	Such blatantly unfair treatment of consumers should not be restricted to a matter of guidance. The new clause that I am proposing ensures that debtors are informed about their rights and that only the debtor may cancel or vary a CPA in communication with the bank. Furthermore, the debtor’s bank is obliged to comply with the debtor’s instructions, as they do with direct debits and standing orders. I suggest to the Minister that in these austere times we ought to legislate to protect such debtors and to ensure a level playing field between the lender and the debtor.

Lord Newby: My Lords, I am grateful to the noble Lords, Lord Sharkey and Lord McFall, for raising this very important issue again. The Government wholeheartedly agree that consumers must be protected when they borrow from payday lenders and use other high-cost forms of credit. Payday lenders are causing unacceptable consumer harm and the Government are committed to putting that right.
	As noble Lords will know, the Government have taken decisive action to protect borrowers by fundamentally reforming the regulatory system governing these lenders. This House strongly supported the Government’s proposals to transfer the regulation of consumer credit to the FCA during the passage of the Financial Services Bill last year.
	The Government have ensured that the FCA has robust powers to protect customers of high-cost lenders. It will thoroughly assess every lender’s fitness to continue to trade. It will put in place much higher standards that firms will have to meet, and those requirements will, for the first time, be binding on firms. It will proactively monitor the market, focusing on the areas most likely to cause consumer harm. The FCA has a broad enforcement toolkit to punish breaches of the rules: there is no limit on the fines it can levy and, crucially, it can force lenders to provide redress to consumers.
	The FCA takes up its new regulatory responsibilities in this area on 1 April next year. But it has already demonstrated that it is serious about cracking down on high-cost lenders. Its draft rules, published on 3 October, restrict some of the practices that cause most consumer detriment, and have won widespread support. But we are convinced that further action will be needed to ensure that this market functions in a way that is in consumers’ interests. As noble Lords will be aware, the Government have announced that they will bring forward an amendment to this Bill at Third Reading to require the FCA to use its powers to cap the cost of payday loans.
	I will not pre-empt our discussion at Third Reading but I would just like to make a few key points on the need for a cap on the costs of credit. The Government have always kept the case for a cap under review as the market has evolved. With growing evidence, including from other countries, in support of a cap, we believe that now is the right time to give the FCA a clear parliamentary mandate to take action under the powers we have given it to implement a cap on total costs.
	The FCA has an important job to do: it must ensure that it designs a cap that works in UK consumers’ best interests and fits the UK market. To do that, it needs to consider the evidence thoroughly, including drawing on the valuable work being undertaken by the Competition Commission to investigate the fundamental problems in the payday market. As the noble Lord, Lord Sharkey, has already pointed out, we do not intend to wait until the Competition Commission has finished its work and have committed to implementing the cap in January 2015.
	The Government’s commitment this week sends a strong message to lenders: “Do not to wait for the authorities to act, raise your game and start charging and treating your customers fairly now”. We will have a full debate on the government amendments at Third Reading—

Lord Watson of Invergowrie: I thank the Minister for giving way. He made the point about treating customers fairly. I understand that he is making a broader point but I noticed that he was nodding a few minutes ago when I spoke about the potential damage to somebody trying to get a mortgage, having taken out a payday loan. Does he agree that some way should be found of ensuring that specific information is given to those taking out a payday loan so that they do not affect their ability to handle other aspects of their financial affairs?

Lord Newby: I was going to come on to this point but I will do so now. I did not see “Newsnight” but I read about the report in today’s papers. It seems demonstrably unfair. I have two sons in their 20s. I have no idea whether they take out payday loans but I know that at some point in the next six years one or both of them might think of getting a mortgage—if they keep working hard. It does seem demonstrably unfair that someone taking out 50 quid for a payday loan today could be automatically denied a mortgage in six years’ time. If the noble Lord will permit me, I propose to draw that to the attention of the FCA.
	There are two elements to this. First, there is the point that the noble Lord made about what might be on the website to point this out. There is also another issue, which is whether it is reasonable for people offering mortgages automatically to deny them to someone who may have taken out a small payday loan and paid it off rapidly. I do not know, for example, whether that rule applies to somebody who has taken out a loan under the traditional method of door-to-door payday-type loans that we had in this country for many decades. I shall draw that to the attention of the FCA.
	I was just beginning to say that we will have a full debate on Third Reading, and I can commit to operating, as the noble Lord, Lord Sharkey suggested, on Committee stage rules. Having sat through many debates in your Lordships’ House, I do not think that, even if I said that we were resistant to noble Lords’ proposals, that would make a huge difference to the behaviour of noble Lords. In any event, I am happy to give that assurance now.
	Turning to the amendments before us, starting with that tabled by the noble Lord, Lord McFall, the Government share his deep concern about the potential for consumers to be misled by lenders. It is essential that consumers are well informed of the risks before entering into an agreement. However, I believe the noble Lord’s concerns will largely be addressed by the FCA’s proposed rules, or already exist in legislation.
	Regulations made under the Consumer Credit Act 1974 in accordance with the consumer credit directive currently require that creditors provide adequate information to enable the consumer to assess whether a proposed credit agreement is suitable to their needs and financial situation. Requirements on lenders to be clear to consumers are also set out in the OFT’s Irresponsible Lending guidance. These requirements will be transposed into binding FCA rules. The noble Lord was worried about guidance; this is being transposed from guidance into rules.
	The FCA has also proposed a tough package of measures to restrict how payday lenders can access money from their customers’ bank accounts via the continuous payment authority mechanism on their debit and credit cards. These include limiting the use of CPAs to two attempts, and banning part payment. The FCA is also proposing to turn the guidance around the use of CPAs from the outgoing regulator, the OFT, into binding FCA rules. Several of the provisions set out in the noble Lord’s amendment are therefore directly covered by these proposed rules, including a requirement for lenders to give the debtor a statement of their rights in relation to the CPA, and the ability of a borrower to cancel a CPA at any time.
	The Government believe that the provisions set out by the noble Lord and not reflected in FCA rules will not, in practice, serve to improve consumer protections. Requiring lenders to provide additional information to consumers on their legal rights presents a real risk of information overload and confusion for consumers. As the noble Lord said in Committee, no one wants to be swamped by hundreds of pages of dense legal text. It is also important to balance awareness of legal
	rights with promoting awareness of the Financial Ombudsman Service, the free service to help consumers resolve disputes. Taking a case to court can be too expensive for consumers.

Lord McFall of Alcluith: The issue here is a level playing field for continuous payment authorities, and direct debits and standing orders. There has to be a loud and clear message from the Financial Conduct Authority to banks, which have 30,000 complaints against them at the moment, and to companies, that we cannot tolerate an imbalance between the power and authority of a lender and the debtor, who can be in ignorance about what is happening to their account. If the Minister can assure me that he will send that message to the FCA, which in turn will send out the message that it needs a level playing field, at least that would be a step forward.

Lord Newby: Absolutely, I am very happy to do that. I hope that the rules would send that message very clearly, but I am very happy to reinforce it.
	I go back to the terms of the amendments. I am concerned that some of the provisions could make it more difficult for a consumer to cancel an agreement—for example, requiring borrowers to sign for cancellation of a CPA. I am confident that the FCA’s proposals will give consumers control with respect to CPAs and in managing their repayments. I strongly support the noble Lord in seeking to protect consumers using the high-cost credit market and ensuring that they know their rights. However, I believe the objectives of transparency and protections for consumers are already provided for by the new regulatory regime; the FCA has already set out the action that it proposes to take in this area.
	I turn to the amendment proposed by the noble Lord, Lord Sharkey. His proposal would require the FCA to implement a number of rules from the Florida model of payday regulation, including a requirement for a cap on credit. I can give the noble Lord at least some of the assurances that he seeks in terms of the FCA considering the Florida approach to regulating payday lenders very closely, as it decides how to design a cap on the total cost of payday loans for the UK market and make sure that it works effectively here. It will consider rollovers and look, for example, at the experience of Florida with a real-time database.
	While I completely support the noble Lord’s desire to learn lessons from other countries’ experience, I have some doubts as to whether it is as straightforward as he thinks to simply import almost an entire regulatory framework from another jurisdiction. The UK has a very different market from other countries, and it is right that the rules governing regulation of payday loans in the UK reflect our own unique national characteristics. The FCA will be charged with doing that, building on the international evidence and examination of the UK market, and drawing on the Competition Commission’s analysis among other things. Therefore, while I share the noble Lord’s commitment to ensuring the UK consumers are protected when they borrow from high-cost lenders, I hope that he will agree that the best way to achieve that is through
	development of evidence-based rules that are tailored to protect UK consumers. We have a clear action plan to deliver this objective.
	The noble Lord, Lord Eatwell, raised the question of the content of the amendments and the relationship between the Government, in setting policy in this area, and the FCA—where the Government stop and the FCA begins. I heard very clearly what he said. The exact nature of the amendment that we will debate at Third Reading is currently being formulated, and I shall make sure that his point is very much in the minds not only of Ministers but of officials as they set about that task.
	With those assurances about the amendment that we will introduce, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Sharkey: I was struck by the point made by the noble Lord, Lord Eatwell, that the Government must at some point surely say how the FCA is to arrive at a rate or an amount for a cap and by what criteria the cap should be determined. I am sure that they will want to revisit that whole notion again at Third Reading.
	As to Florida, I am encouraged by what the Minister says. I make the overriding point that the Florida system has been operating for 11 years; it is simple, it
	is easy to understand and it works. What we have here now does not work, is not simple and is not easy to understand—and it costs three times as much as Florida. That is a powerful reason for looking carefully at Florida and assuming that there is something that we can really learn here, no matter the differences between the two jurisdictions. However, I am very grateful for the Government’s decision to cap the total cost of payday loans, and I look forward to a further discussion of the issues at Third Reading under Committee stage rules. In the mean time, I beg leave to withdraw the amendment.
	Amendment 121 withdrawn.
	Consideration on Report adjourned.

London Local Authorities and Transport for London (No.2) Bill [HL]
	 — 
	Returned from the Commons

The Bill was returned from the Commons with amendments.
	House adjourned at 9.40 pm.